401(k) vs. Roth IRA - Monthly Income Calculator

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This calculator compares a 401(k) plan with a Roth IRA.

Notes

  • This calculator does not take into account the dollar limit on contributions. You should evaluate the results of this calculator while considering the limits that apply to your client.
  • To calculate the Roth IRA limit, use the IRA Phaseout Calculator.
  • The starting point for determining contributions for this calculator is a percentage of monthly income. To start this comparison using a dollar amount contribution, use the 401(k) vs. Roth IRA - Annual Contribution calculator.

Example

Your client has reached the limit of his 401(k) employer match and wants to contribute more to his retirement. Should he make any additional contributions to his 401(k) that would not be matched?

Note: In this example we will only compare the unmatched contributions.

Field Input
Average monthly income $5,000
Employee contribution 5%
Employer match 0%
Federal tax rate 28%
Years of contributions 10
Annual rate of return 8%
Average tax rate during retirement 10%
Years of retirement 20
Annual rate of return during retirement 5%

The amounts in the Monthly income after taxes fields indicate the better option. In this example, the better option is the 401(k) because it produces $54.33 more in after tax monthly income.

Notes

  • If you choose, you may use this calculator to compare the entire 401(k) vs. the Roth IRA by entering the total employee contribution and the employer match amounts.
  • The federal and state tax rate applied to contributions is usually the marginal tax rate. During retirement, the distributions from a retirement account are often a major source of taxable income. This is why the average tax rate, rather than the marginal tax rate, is used to compute the after tax income. For example, if the retirement income is the only source of income, some of the income will not be taxed at all, some will be taxed at a lower rate, and so on. This averaging of tax rates is not usually required for contributions.

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