Making The
Most of Your
Retirement Plan
The Roth 401k
vs.
The Traditional 401k
The Roth
401k
The
Traditional
401k
Contributions
go in AFTER tax
Contributions go
in BEFORE tax
Withdrawals (@59.5)
are ta...
Roth vs. Traditional 401k
Example 1
Assumptions
Income:
Pre-retire tax rate:
Post-retire tax rate:
Contribution:
$60,000
2...
Assumptions:
Income: $60,000
Pre-retire tax rate: 25%
Post-retire tax rate: 20%
Contribution: 10%*
Roth
Traditional
Income...
Assumptions:
Income: $60,000
Pre-retire tax rate: 25%
Post-retire tax rate: 20%
Contribution: 10%*
Roth
Traditional
Income...
Assumptions:
Growth Rate: 6%
Years till Retirement: 30
Growth of Monies
(in 30 years)
Roth Traditional
Contributed:
$4,500...
Time To
Cash
out...
Which
account
has
more?
Assumptions:
Income: $60,000
Pre-retire tax rate: 25%
Post-retire tax rate: 20%
Contribution: 10%*
Roth
Growth of Monies
T...
So, it looks like the
traditional was
better there. Right?
Yeah. But the tax rates
were higher for the
pre-retire stage. L...
Roth vs. Traditional 401k
Example 2
Assumptions
Income:
Pre-retire tax rate:
Post-retire tax rate:
Contribution:
$60,000
2...
Assumptions:
Income: $60,000
Pre-retire tax rate: 20%
Post-retire tax rate: 25%
Contribution: 10%*
Roth
Traditional
Income...
Assumptions:
Income: $60,000
Pre-retire tax rate: 20%
Post-retire tax rate: 25%
Contribution: 10%*
Roth
Traditional
Income...
Assumptions:
Growth Rate: 6%
Years till Retirement: 30
Growth of Monies
(in 30 years)
Roth Traditional
Contributed:
$4,800...
Time To
Cash
out...
Which
account
has
more?
Assumptions:
Income: $60,000
Pre-retire tax rate: 20%
Post-retire tax rate: 25%
Contribution: 10%*
Roth
Growth of Monies
T...
Now the Roth has a
higher amount...
What's the takeaway?
The WHY
Ordinary tax rate today
Ordinary tax rate when you
withdraw funds
If tax rates are
expected to be
higher when fund...
The WHY
Ordinary tax rate today
Ordinary tax rate when you
withdraw funds
If tax rates are
expected to be higher
today com...
What are you
waiting on?!
Get started
saving!!
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Roth vs. traditional 401k

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In this slideshare we talk about the differences between the traditional 401k and the Roth 401k. We give examples of both of them and discuss when each makes sense.

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Roth vs. traditional 401k

  1. 1. Making The Most of Your Retirement Plan The Roth 401k vs. The Traditional 401k
  2. 2. The Roth 401k The Traditional 401k Contributions go in AFTER tax Contributions go in BEFORE tax Withdrawals (@59.5) are taxed @ ordinary tax rate Withdrawals (@59.5) come out tax free
  3. 3. Roth vs. Traditional 401k Example 1 Assumptions Income: Pre-retire tax rate: Post-retire tax rate: Contribution: $60,000 25% 20% 10% (of pre-tax income for traditional&ofpost-taxincomefor Roth)
  4. 4. Assumptions: Income: $60,000 Pre-retire tax rate: 25% Post-retire tax rate: 20% Contribution: 10%* Roth Traditional Income: Taxes: Net Pay: CONTRIBUTION: $60,000 $15,000 ($60,000 * 25%) $45,000 $4,500 ($45,000 * 10%) Income: CONTRIBUTION: Taxable Income: Taxes: Net Pay: $60,000 $6,000 ($60,000 * 10%) $54,000 $13,500 ($54,000 * 25%) $40,500 Working Years
  5. 5. Assumptions: Income: $60,000 Pre-retire tax rate: 25% Post-retire tax rate: 20% Contribution: 10%* Roth Traditional Income: Taxes: Net Pay: CONTRIBUTION: $60,000 $15,000 ($60,000 * 25%) $45,000 $4,500 ($45,000 * 10%) Income: CONTRIBUTION: Taxable Income: Taxes: Net Pay: $60,000 $6,000 ($60,000 * 10%) $54,000 $13,500 ($54,000 * 25%) $40,500 Working Years Taxes are LESS in the traditional because they are calculated on the amount minus the contribution
  6. 6. Assumptions: Growth Rate: 6% Years till Retirement: 30 Growth of Monies (in 30 years) Roth Traditional Contributed: $4,500 Contributed: $6,000 Grew to: $27,846 Grew to: $34,461
  7. 7. Time To Cash out... Which account has more?
  8. 8. Assumptions: Income: $60,000 Pre-retire tax rate: 25% Post-retire tax rate: 20% Contribution: 10%* Roth Growth of Monies Taxes Net Withdrawal Traditional $25,846 $34,461 $6,892 $27,569 $0 $25,846
  9. 9. So, it looks like the traditional was better there. Right? Yeah. But the tax rates were higher for the pre-retire stage. Let's switch that up to see if anything changes.
  10. 10. Roth vs. Traditional 401k Example 2 Assumptions Income: Pre-retire tax rate: Post-retire tax rate: Contribution: $60,000 20% 25% 10% (of pre-tax income for traditional&ofpost-taxincomefor Roth Pre-retire tax rate is now lower than the post-retire tax rate
  11. 11. Assumptions: Income: $60,000 Pre-retire tax rate: 20% Post-retire tax rate: 25% Contribution: 10%* Roth Traditional Income: Taxes: Net Pay: CONTRIBUTION: $60,000 $12,000 ($60,000 * 20%) $48,000 $4,800 ($45,000 * 10%) Income: CONTRIBUTION: Taxable Income: Taxes: Net Pay: $60,000 $6,000 ($60,000 * 10%) $54,000 $10,800 ($54,000 * 20%) $43,200 Working Years
  12. 12. Assumptions: Income: $60,000 Pre-retire tax rate: 20% Post-retire tax rate: 25% Contribution: 10%* Roth Traditional Income: Taxes: Net Pay: CONTRIBUTION: $60,000 $12,000 ($60,000 * 20%) $48,000 $4,800 ($45,000 * 10%) Income: CONTRIBUTION: Taxable Income: Taxes: Net Pay: $60,000 $6,000 ($60,000 * 10%) $54,000 $10,800 ($54,000 * 20%) $43,200 Working Years Contribution is GREATER due to taxes being LESS in this example
  13. 13. Assumptions: Growth Rate: 6% Years till Retirement: 30 Growth of Monies (in 30 years) Roth Traditional Contributed: $4,800 Contributed: $6,000 Grew to: $27,569 Grew to: $34,461
  14. 14. Time To Cash out... Which account has more?
  15. 15. Assumptions: Income: $60,000 Pre-retire tax rate: 20% Post-retire tax rate: 25% Contribution: 10%* Roth Growth of Monies Taxes Net Withdrawal Traditional $27,569 $34,461 $8,615 $25,846 $0 $27,569
  16. 16. Now the Roth has a higher amount... What's the takeaway?
  17. 17. The WHY Ordinary tax rate today Ordinary tax rate when you withdraw funds If tax rates are expected to be higher when funds are withdrawn then tax rates are for you today... the traditional 401k would be a better option
  18. 18. The WHY Ordinary tax rate today Ordinary tax rate when you withdraw funds If tax rates are expected to be higher today compared to tax rates when you plan to withdraw funds... the Roth 401k would be a better option
  19. 19. What are you waiting on?! Get started saving!!
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