Employer Retirement Plan vs. Taxable Investment Calculator

Alerts and notices
Leave feedback

Internal Employees: Submit feedback

Contact information (optional):

Leave this blank:

Please tell us how we can make this information more helpful.


Characters left:

This calculator compares the financial outcomes of contributing a percentage of gross pay to an employer retirement plan (such as a 401(k) or 401(b) plan) versus investing the after-tax amount of such pay in a taxable investment account.

Example

An individual wants to contribute 10% of his income to a retirement account, and he wants to know if a tax-sheltered account is worth the limitations on withdrawals that come with it.

Field Input
Monthly gross pay $5,000
Employee contribution 10%
Federal tax rate 28%
Years of contributions 10
Annual rate of return 8%
Average tax rate during retirement 15%
Years of retirement 20
Annual rate of return during retirement 5%

In this example, the individual would accumulate an after-tax monthly income of $513.13 from the tax sheltered account or $333.07 from the taxable account.

Note: The federal and state tax rates applied to contributions is usually the marginal tax rate. During retirement, the distributions from a retirement account often span many tax rates. For the distribution period (retirement), enter the average tax rate to which the distributions will be subjected. If the retirement plan account distribution is the only taxable income, the average tax rate equals the total tax liability divided by the taxable distribution.

Share This