The New Roth 401(K)

Save now and enjoy tax-free withdrawals in retirement

considering the Roth 401(k) should keep in mind that the cost of not paying taxes in the future, is paying taxes today. So if you like the idea of tax-free retirement savings — where $500,000 saved is actually $500,000 in your pocket — you should act now to achieve the maximum benefit. If you wait too long to decide, you might miss out: the Economic Growth and Tax Relief Reconciliation Act mandates that the Roth 401(k) expire in 2010.

Traditional 401(k) compared with Roth 401(k)
(Example based on an individual making $60,000, in the 15% tax bracket, and contributing 6% of his or her salary to a retirement account)

Contributing to a Roth 401(k) means saving more today….

     
  Traditional 401(k) Roth 401(k)
Contribution $3,600 $3,600
Tax savings (15%) 540 0
Take-home pay impact 3,060 3,600
Biweekly pay impact 118 138

and having even more in retirement.

  Traditional 401(k) Roth 401(k)
Account value after 30 years $201,906 $201,906
Taxes due (t = 15%) (30,286) 0
After-tax savings 171,620 201,906
Difference 18%

 

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