401k vs 401k Roth Calculator: Which One Will Make You a Millionaire?

Introduction

When it comes to saving for retirement, two of the most popular options are the 401(k) and the 401(k) Roth. Both plans offer tax benefits, but they have different rules and contribution limits. To decide which plan is right for you, it's important to understand the differences between them.

401(k) vs 401(k) Roth Calculator

The following calculator can help you compare the 401(k) and 401(k) Roth plans and see how much you could save.

401(k) vs 401(k) Roth Calculator

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How to Use the Calculator

To use the calculator, simply enter your age, current income, retirement age, expected rate of return, and annual contribution. The calculator will then project how much you could save in each plan.

401(k) vs 401(k) Roth: Key Differences

The following are the key differences between the 401(k) and 401(k) Roth plans:

• Tax treatment: With a 401(k), you contribute pre-tax dollars, which means that your contributions reduce your current taxable income. However, you will pay taxes on your withdrawals in retirement. With a 401(k) Roth, you contribute after-tax dollars, which means that you will not get a tax deduction now. However, your withdrawals in retirement will be tax-free.
• Contribution limits: The annual contribution limit for 401(k) plans is $20,500 in 2023 ($27,000 for those age 50 and older). The annual contribution limit for 401(k) Roth plans is $6,500 in 2023 ($7,500 for those age 50 and older).
• Eligibility: To be eligible for a 401(k) plan, you must be employed by a company that offers the plan. To be eligible for a 401(k) Roth plan, you must meet certain income limits.

Which Plan Is Right for You?

The best way to decide which plan is right for you is to consider your individual circumstances. If you are in a high tax bracket now and expect to be in a lower tax bracket in retirement, then a 401(k) may be a better option for you. If you are in a low tax bracket now and expect to be in a higher tax bracket in retirement, then a 401(k) Roth may be a better option for you.

Conclusion

The 401(k) and 401(k) Roth are both excellent retirement savings plans. The best plan for you will depend on your individual circumstances. By using the calculator above, you can compare the two plans and see which one is right for you.

FAQs

1. What is the difference between a 401(k) and a 401(k) Roth?

The main difference between a 401(k) and a 401(k) Roth is the tax treatment. With a 401(k), you contribute pre-tax dollars, which means that your contributions reduce your current taxable income. However, you will pay taxes on your withdrawals in retirement. With a 401(k) Roth, you contribute after-tax dollars, which means that you will not get a tax deduction now. However, your withdrawals in retirement will be tax-free.

2. Which plan is right for me?

The best way to decide which plan is right for you is to consider your individual circumstances. If you are in a high tax bracket now and expect to be in a lower tax bracket in retirement, then a 401(k) may be a better option for you. If you are in a low tax bracket now and expect to be in a higher tax bracket in retirement, then a 401(k) Roth may be a better option for you.

3. How much can I contribute to a 401(k) or 401(k) Roth?

The annual contribution limit for 401(k) plans is $20,500 in 2023 ($27,000 for those age 50 and older). The annual contribution limit for 401(k) Roth plans is $6,500 in 2023 ($7,500 for those age 50 and older).

4. What happens if I withdraw money from my 401(k) or 401(k) Roth before retirement?

With a 401(k), you will pay taxes on your withdrawals plus a 10% early withdrawal penalty if you are under age 59 1/2. With a 401(k) Roth, you can withdraw your contributions at any time without paying taxes or penalties. However, you will pay taxes and penalties on any earnings if you withdraw them before age 59 1/2.

5. What happens to my 401(k) or 401(k) Roth when I die?

Your beneficiaries will receive your 401(k) or 401(k) Roth when you die. If you have named a beneficiary, they will receive the money directly. If you have not named a beneficiary, the money will go to your estate.

6. Can I roll over my 401(k) or 401(k) Roth to another account?

Yes, you can roll over your 401(k) or 401(k) Roth to another account. This can be done if you leave your job or if you want to consolidate your retirement savings.

7. What are the benefits of a 401(k) or 401(k) Roth?

401(k) plans offer the following benefits:

• Tax-deferred growth: Your contributions grow tax-free until you withdraw them in retirement.
• Employer matching contributions: Many employers offer matching contributions to their employees' 401(k) plans. This can help you save even more money for retirement.

401(k) Roth plans offer the following benefits:

• Tax-free withdrawals: Your withdrawals in retirement will be tax-free.
• No required minimum distributions: You are not required to take minimum distributions from your 401(k) Roth during your lifetime.
• Estate planning: You can use your 401(k) Roth to pass money to your heirs tax-free.

8. What are the risks of a 401(k) or 401(k) Roth?

401(k) plans have the following risks:

• Market risk: The value of your investments can go down as well as up. This could result in losses if you withdraw your money before the market recovers.
• Early withdrawal penalties: You will pay taxes and a 10% early withdrawal penalty if you withdraw money from your 401(k) before age 59 1/2.

401(k) Roth plans have the following risks:

• Investment risk: The value of your investments can go down as well as up. This could result in losses if you withdraw your money before the market recovers.
• Income limits: You may not be eligible to contribute to a 401(k) Roth if your income is too high.

Conclusion

The 401(k) and 401(k) Roth are both excellent retirement savings plans. The best plan for you will depend on your individual circumstances. By using the calculator above, you can compare the two plans and see which one is right for you.

Additional Resources

• IRS Publication 575: Pension and Annuity Income
• 401(k) Plans
• 401(k) Roth Plans