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Data Source and Methodology
All calculations are based on IRS guidelines and standard financial formulas. For more details, visit the IRS Roth Comparison Chart.
The Formula Explained
Future Value = Contribution × ((1 + Rate of Return) ^ Years)
Glossary of Terms
- Annual Contribution: The amount you plan to contribute each year.
- Years to Retirement: The number of years until you plan to retire.
- Expected Rate of Return: The annual growth rate expected on your contributions.
How It Works: A Step-by-Step Example
For example, if you contribute $5,000 annually for 30 years with an expected return of 7%, the future value of your 401(k) and Roth 401(k) will be calculated using the formula above.
Frequently Asked Questions (FAQ)
What is the difference between a 401(k) and a Roth 401(k)?
A traditional 401(k) allows pre-tax contributions, while a Roth 401(k) involves post-tax contributions.
How do taxes affect my Roth 401(k)?
Roth 401(k) contributions are taxed upfront, but withdrawals are tax-free in retirement.
Can I have both a 401(k) and a Roth 401(k)?
Yes, you can contribute to both, but the total contributions must not exceed the IRS limit.
What happens if I withdraw from my Roth 401(k) early?
Early withdrawals may be subject to taxes and penalties unless certain conditions are met.
What should I consider when choosing between them?
Consider factors such as current tax rate, expected future tax rate, and investment horizon.