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….
| Â | Â | Â |
| Â | 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.
| Â | 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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