Gypes

Workplace retirement tax comparison

Roth vs. Traditional 401(k) calculator

Compare both the same plan contribution and the same reduction in take-home pay, then test how today’s tax rate and the assumed retirement withdrawal rate change after-tax value.

This tool compares the same contribution and the same take-home-pay cost. Gather the current marginal tax rate affected by deferral and verify the current contribution limit that applies to you. Gray placeholder numbers are examples only and are not used until you enter a value.

1Set the cash and tax comparison

Start with what your budget can support and the marginal income-tax rate that a pre-tax deferral would actually avoid today.

2Check the current plan limit

This figure comes from current IRS rules and your eligibility, not from an investment forecast.

3Describe retirement

Choose the comparison horizon and a tax rate for Traditional withdrawals. Rerun the tool with a higher and lower tax-rate case.

4Test investment assumptions

Both tax treatments use these same assumptions so the comparison isolates the tax choice.

Two comparisons answer different questions

A Roth and Traditional contribution of the same dollar amount do not create the same current cash-flow cost. The Traditional deferral can reduce current taxable income, while the Roth contribution is included in current gross income. This calculator therefore reports both an equal-contribution comparison and an equal-take-home-pay-cost comparison instead of presenting one as universally fair.

Same contribution shows the value placed inside the plan

In the same-contribution scenario, the entered amount goes into either account. Both balances follow the same contribution and investment assumptions. The model reduces the Traditional ending balance by the entered retirement tax rate and treats the Roth ending balance as tax-free. It separately reports the first-year estimated current tax reduction from the Traditional contribution. That tax reduction is not invested in this scenario, so the Roth path has a larger current cash-flow cost.

Same take-home-pay cost invests the Traditional tax benefit

For an equal current cost, the model divides the Roth contribution by one minus the current marginal tax rate to calculate the gross Traditional deferral. At a 24% current rate, a $12,000 Roth contribution has the same simplified take-home-pay cost as a $15,789.47 Traditional contribution because $15,789.47 multiplied by 76% equals $12,000. This assumes the full marginal tax benefit is available and contributed.

The tax-rate break-even is visible

Under the same-cost assumptions, identical investments, qualified Roth withdrawals, and a flat tax rate on Traditional withdrawals, the paths have equal after-tax value when the retirement tax rate equals the current marginal tax rate. A lower retirement tax rate favors Traditional in this simplified comparison; a higher rate favors Roth. Real tax results depend on progressive brackets, deductions, state rules, other income, withdrawal timing, and law changes rather than one rate applied to an entire balance.

Roth treatment depends on a qualified distribution

The IRS explains that designated Roth contributions are included in current gross income and qualified distributions, including earnings, are excluded from gross income. Qualification generally involves a five-taxable-year participation period and an eligible event such as reaching age 59½. Review the IRS designated Roth account overview and designated Roth FAQs. This model assumes the Roth ending value is distributed through qualified withdrawals.

Traditional tax savings are an estimate, not a refund promise

The current-rate input should represent the marginal income-tax rate actually affected by an additional pre-tax deferral. Traditional 401(k) deferrals generally do not reduce every tax or payroll deduction, and the full contribution may not fall within one marginal bracket. Credits, deductions, state treatment, compensation rules, and tax filing facts can change the result. Use a tax projection for the contribution range rather than automatically entering a headline bracket.

Traditional and Roth deferrals share a limit

The IRS states that combined pre-tax elective deferrals and designated Roth contributions cannot exceed the applicable employee deferral limit. The calculator does not hard-code eligibility, catch-up rules, compensation limits, contributions to other plans, or future inflation adjustments. Instead, it compares the first-year amounts with the limit you enter. Verify the current IRS 401(k) contribution limits and your plan terms.

How investment growth is modeled

Contributions are spread evenly across each year and deposited at month-end. The entered fee rate is subtracted from the nominal annual return, and the resulting annual rate is converted to an equivalent monthly rate. Contributions change once per year by the entered growth rate. Both tax treatments use the same investment path so the comparison isolates the entered tax assumptions.

Employer contributions and existing balances are separate

This calculator models new employee deferrals only. It excludes current Roth or Traditional balances, employer matching, Roth employer contributions, vesting, rollovers, required minimum distributions, early withdrawals, loans, hardship distributions, tax penalties, Social Security taxation, Medicare premiums, and taxable investing outside the plan. Use the 401(k) Employer Match Calculator to inspect the plan’s match formula separately.

This calculator provides an educational scenario, not investment, tax, legal, accounting, fiduciary, benefits, or retirement advice. It assumes qualified Roth withdrawals and applies one entered tax rate to the modeled Traditional ending balance. Tax law, plan rules, limits, returns, fees, contribution timing, and individual circumstances can materially change actual results.