Roth vs Traditional 401k Calculator

Roth 401k vs Traditional 401k  

Many people feel they need to choose between a Roth 401(k) or a traditional 401(k) retirement account. Both can be part of your retirement plan.  

Each option offers unique benefits and tax implications. It’s important to understand the differences so you can make an informed decision about your financial future.  

While it’s best to consult with a professional financial advisor to figure out the best options for your needs, our free Roth vs Traditional 401(k) calculator can help you evaluate your options.  

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What is a Roth 401k?

A Roth 401(k) is a retirement savings plan where you can contribute after-tax dollars. This means you pay taxes on the money before you deposit it into your account. Generally, withdrawals during retirement are tax-free. This can be beneficial if you expect to be in a higher tax bracket during retirement.

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What is a Traditional 401k?

A traditional 401(k) retirement savings plan allows individuals to contribute pre-tax dollars. This can reduce taxable income for the year, which can lower your current tax bill. Generally, withdrawals during retirement will be taxed as ordinary income. This option might be preferable if you expect to be in a lower tax bracket in retirement.

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Key Differences Between Roth and Traditional 401k

Tax Treatment

The biggest difference between a Roth 401(k) and a traditional 401(k) is when you pay taxes.  

With a Roth 401(k), you pay taxes upfront, while with a traditional 401(k), you defer taxes until retirement. This distinction can affect your retirement savings strategy.

Contribution Limits

Both Roth 401(k) and traditional 401(k) accounts are subject to the same contribution limits, which are set by the IRS each year.  

For 2025, total combined contributions can’t exceed $23,500 if you’re under 50. Individuals aged 50 and above are eligible for catch-up contributions. Their total combined contributions cannot exceed $31,000 in 2025.  

Required Minimum Distributions (RMDs)

The IRS generally requires that you start taking withdrawals from your traditional 401(k) when you reach age 73. Roth 401(k) accounts are not subject to IRS RMD rules during the account holder’s lifetime.  

How a Roth vs Traditional 401k Calculator Works

A Roth vs traditional 401(k) calculator can help you compare the potential outcomes of investing in each type of account. By inputting various financial factors, such as your current income, expected retirement income, and tax rates, you can get a picture of which option may be better for you.

Input Variables

Most calculators will ask for the following information:

• Current age and planned retirement age

• Annual income and current tax rate

• Hypothetical rate of return

• Expected tax rate at retirement

• Anticipated contribution amounts and any employer matching

Output Results

The calculator then provides an estimate of your potential savings at retirement for each type of account. It can estimate the impact of taxes on your savings and help you visualize which choice might maximize your retirement income.

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Benefits of Using a Retirement Savings Calculator

It’s best to get personalized advice centered around your goals from a financial professional. However, a retirement savings calculator can help you understand the options and simplify some complex financial decisions.  

Personalized Estimates

A calculator can offer estimates based on inputs from your financial situation. This approach can help you develop financial strategies that align with your retirement goals.

Comparison Analysis

By providing side-by-side comparisons, a retirement account comparison calculator can help you visualize the potential long-term benefits and drawbacks of each account. This analysis can offer insight to help you choose the right retirement savings strategy.

Future Planning

Understanding how different variables affect your retirement savings can help you adjust your financial plan. Whether it's increasing contributions or adjusting investment strategies, the insights gained can help you plan more effectively.

Choosing Between a Roth and Traditional 401k

Choosing to invest in a Roth 401(k) or a traditional 401(k) ultimately depends on your financial goals and circumstances. It’s wise to consult with a financial planner about your specific situation.  

Here are some considerations to keep in mind:

Current vs Future Tax Rates

Consider whether your current tax rate is lower than what you expect it might be in retirement. If so, a Roth 401(k) might be more beneficial. If you expect your tax rate to decrease in retirement, a traditional 401(k) could be a better choice.

Financial Flexibility

If having tax-free income during retirement is important to you, a Roth 401(k) can offer that flexibility. This can be beneficial for those who expect to have significant retirement income from various sources.

Employer Matching

If you employer offers matching contributions, try to take advantage of this benefit as it is essentially free money.  

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Conclusion

You can use a retirement savings calculator to help you craft a retirement plan that meets your needs. It can help you visualize the differences between a Roth 401(k) and a traditional 401(k) so you can weigh the tax implications, contribution limits, and potential investment growth.  

This information, when combined with professional financial advice, can help you make informed choices about your financial future.  

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Retirement Plans for Small Business from SurePayroll  

Small business employers can support their employees in building their future by starting a 401(k) plan for their business.    

SurePayroll can guide you in setting up a Sure401k® plan to meet your business needs, whether building a plan for yourself, your business, your employees, or a combination of all three.  

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