Compare Roth and traditional 401(k) contributions, employer match, and after-tax retirement balances or find the break-even future tax rate for your plan.
Roth vs Traditional 401(k) Formula
This scenario model projects Roth, pretax and fully vested pretax employer-match balances separately. Ages must be whole numbers, with retirement later than the current age. The first contribution is made at the end of year one, using the entered first-year salary; salary growth affects later contributions. Qualified Roth withdrawals are assumed, and the entered retirement income-tax rate applies only to pretax portions.
For the Roth strategy:
For the traditional strategy:
Equal take-home cost grosses up the traditional rate:
Variables:
- Tf is the retirement tax rate
- Tc is the entered current flat income-tax scenario rate; the model does not calculate brackets or a FICA reduction
- employer matching is assumed fully vested and pretax in both strategies; Roth employer matching is not modeled
- salary in year k is first-year salary times (1 + salary growth)(k – 1); employee and match contributions enter at each year-end
Same-contribution mode deposits the same employee percentage, but Roth has a higher modeled take-home cost when the current tax rate is positive. Investing the traditional tax savings outside the plan is not included. Equal take-home cost uses cRoth / (1 – Tc) for the traditional percentage. If that exceeds 100% of salary, the calculator rejects the inputs rather than silently capping the rate and breaking the equal-cost comparison.
Existing Roth and pretax balances retain their tax character in both scenarios and cancel from the strategy difference. Let ER and ET be future values of new employee contributions and MR and MT the pretax match future values. With A = ER and D = ET + MT – MR, Roth minus traditional is A – D(1 – Tf), so the unique break-even rate is 1 – A/D when D is nonzero. If no differing contributions are projected, all retirement tax rates tie and there is no unique threshold.
The model does not enforce annual limits, plan-specific matching provisions, vesting schedules or required distributions. All return and tax rates are constant hypothetical assumptions, not forecasts. It does not determine whether Roth withdrawals are qualified or calculate early-distribution taxes, fees or income-based tax effects. See the IRS designated Roth account FAQs for the separate tax rules.
Comparison Basis Examples
Equal contribution and equal take-home cost answer different planning questions.
| Basis | Roth rate | Traditional rate at 24% tax | Take-home effect |
|---|---|---|---|
| Same contribution | 10% | 10% | Roth costs more today |
| Same take-home cost | 10% | 13.16% | Approximately equal |
| Same contribution | 6% | 6% | Roth costs more today |
| Same take-home cost | 6% | 7.89% | Approximately equal |
Example Problems
Example 1: Compare equal percentages.
Assume one year, $100,000 first-year salary, a 10% employee contribution, 24% current income tax, 20% retirement income tax, zero salary growth and return, and no existing balance or match. The year-end employee deposit is $10,000 for either strategy. Roth ends at $10,000 after tax and traditional at $8,000, a $2,000 modeled difference. However, Roth reduces current take-home pay by $10,000 versus $7,600 for traditional; this is not an equal-current-cost comparison.
Example 2: Compare equal take-home cost.
Using the same one-year assumptions but equal take-home cost, 10% / (1 – 24%) = approximately 13.157895% for traditional. Roth deposits $10,000 and traditional deposits approximately $13,157.89, each with a modeled $10,000 current take-home cost. At a 24% retirement tax rate, both end at $10,000 after tax. These are hypothetical inputs; annual contribution limits are not checked.
Frequently Asked Questions
How is employer match treated?
Matching is assumed fully vested and pretax, and is taxed at the entered retirement rate. Each year it equals salary times the smaller of the employee contribution percentage and the eligible employee-percentage cap, multiplied by the employer match rate. A larger traditional contribution in equal-cost mode can earn more match before the cap. Roth employer matching and vesting schedules are not modeled.
Why enter the current Roth share?
It preserves the different tax treatment of dollars already accumulated.
Does the model calculate a full tax return?
No. It uses entered flat income-tax scenario rates rather than calculating tax brackets, deductions, credits, state interactions or other income-based effects. The equal-cost gross-up models income tax only; it does not treat either contribution as reducing FICA. Qualified Roth withdrawal conditions must be checked separately.
