Wednesday May 16th, 2012

Roth or Traditional 401(k) Calculator

A 401(k) contribution can be an effective retirement tool. As of January 2006, there is a new type of 401(k) - the Roth 401(k) . The Roth 401(k) allows you to contribute to your 401(k) account on an after-tax basis - and pay no taxes on qualifying distributions when the money is withdrawn. For some investors, this could prove to be a better option than contributing on a pre-tax basis, where deposits are subject to taxes when the money is withdrawn. Use this calculator to help determine the best option for your retirement.

Roth or Traditional 401(k)?

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**GRAPH2**

RESULTS_MSG How was this calculated?

Step 1: First we found the value of a Roth 401(k) if you contributed ANNUAL_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This equaled TOTAL_ROTH. Since qualified withdrawals from a Roth 401(k) are not taxed, the total value remains TOTAL_ROTH.

Step 2: We then computed the totals for a Traditional 401(k). Again we determined the value of ANNUAL_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This is the same amount as the Roth 401(k) total, V401K_TOTAL_BF_TAX. However, contributions and all earnings in a Traditional 401(k) are taxable when they are withdrawn. After taxes, the value of your Traditional 401(k) account would be V401K_TOTAL_AF_TAX.

Step 3: Since you receive a current year tax deduction for any Traditional 401(k) contributions, we need to determine the value of investing this tax savings and add this amount to the Traditional 401(k) total. If we forget this step, our comparison will not be equal. We would, in effect, be contributing more to our Roth 401(k) than the Traditional 401(k). If your tax savings were invested for YEARS_UNTIL_RETIREMENT years at an assumed rate of RATE_OF_RETURN, this returns a total of TOTAL_TAXABLE after taxes.

Results Summary
&NBSP;	Traditional 401(k)	Roth 401(k)
Total contributions MSG_CONTRIBUTE_LBL	TOTAL_CONTRIBUTIONS	TOTAL_CONTRIBUTIONS
Total before taxes	V401K_TOTAL_BF_TAX	TOTAL_ROTH
Value of investing tax savings	+ TOTAL_TAXABLE	+ 0
Taxes for 401(k) at retirement	- V401K_TOTAL_TAXES	- 0
Value at retirement (age AGE_OF_RETIREMENT)	TOTAL_401K	TOTAL_ROTH
RESULTS_MSG

Your input values

Input Summary
Annual contribution* MSG_CONTRIBUTE_LBL	ANNUAL_CONTRIBUTION	Current age	CURRENT_AGE
Years until retirement	YEARS_UNTIL_RETIREMENT	Age of retirement	AGE_OF_RETIREMENT
Expected rate of return	RATE_OF_RETURN	&NBSP;	&NBSP;
Current tax rate	CURRENT_TAX_RATE	Retirement tax rate	RETIREMENT_TAX_RATE

**GRAPH**

401(k) Balances by year

**REPEATING GROUP**

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Definitions

Current age
Your current age.

Annual contribution
The amount you will contribute to a 401(k) each year. This calculator assumes that you make 12 equal contributions throughout the year at the beginning of each month. The annual maximum for 2009 is $16,500. If you are age 50 or over, a "catch-up" provision allows you to contribute even more to your 401(k). In 2009, employees age 50 or over can deposit an additional $5,500 into their 401(k) account. It is also important to note that employer contributions do not affect an employee's maximum annual contribution limit. Both the annual maximum and "catch-up" provisions are indexed for inflation.

It is important to note that some employees are subject to another form of contribution limits. Employees classified as "Highly Compensated" may be subject to contribution limits based on their employer's overall 401(k) participation. If you expect your salary to be $110,000 or more in 2009 or was $105,000 or more in 2008, you may need to contact your employer to see if these additional contribution limits apply to you.

Expected rate of return
The annual rate of return for your 401(k) account. This calculator assumes that your return is compounded annually and your deposits are made monthly. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, from June 1982 through June 1983. The lowest 12-month return was -39%, which happened twice, once from September 1973 to September 1974 and again from November 2007 to November 2008. Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.

Age of retirement
Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your 401(k). So if you retire at age 65, your last contribution happened when you were actually 64.

Current tax rate
The current marginal income tax rate you expect to pay on your taxable investments. Use the table below to assist you in determining your current tax rate.

Filing Status and Income Tax Rates 2009 Caution: Do not use these tax rate schedules to figure 2008 taxes. Use only to figure 2009 estimates.
Tax rate	Married filing jointly or Qualified Widow(er)	Single	Head of household	Married filing separately
10%	$0 - 16,700	$0 - 8,350	$0 - $11,950	$0 - 8,350
15%	$16,701- 67,900	$8,351- 33,950	$11,951- 45,500	$8,351- 33,950
25%	$67,901- 137,050	$33,951- 82,250	$45,501- 117,450	$33,951- 68,525
28%	$137,051- 208,850	$82,251- 171,550	$117,451- 190,200	$68,526- 104,425
33%	$208,851- 372,950	$171,551- 372,950	$190,200- 372,950	$104,425- 186,475
35%	over $372,950	over $372,950	over $372,950	over $186,475

Source: http://www.irs.gov/pub/irs-drop/rp-08-66.pdf

Retirement tax rate
The marginal tax rate you expect to pay on your investments at retirement.

After tax total at retirement
For the Roth 401(k), this is the total value of the account. For the Traditional 401(k), this is the sum of two parts: 1) The value of the account after you pay income taxes on all earnings and tax-deductible contributions and 2) what you would have earned if you had invested (in an ordinary taxable account) any income tax savings.