401(k) vs Roth IRA Calculator
401(k) vs Roth IRA Comparison Calculator
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Rates & Assumptions
About This Calculator
This calculator helps you compare the potential benefits of investing in a Traditional 401(k) versus a Roth IRA based on your personal financial situation. It factors in current and future tax rates, investment returns, and your time horizon to retirement to determine which option might be more advantageous for your specific circumstances.
Tax Benefits Comparison: 401(k) vs Roth IRA
Traditional 401(k)
- Contributions are pre-tax (reduce your current taxable income)
- Investment growth is tax-deferred
- Withdrawals in retirement are taxed as ordinary income
- Often includes employer matching contributions
- 2025 contribution limit: $22,500 ($30,000 if age 50+)
- Required Minimum Distributions (RMDs) begin at age 73
Roth IRA
- Contributions are after-tax (no immediate tax benefit)
- Investment growth is tax-free
- Qualified withdrawals in retirement are completely tax-free
- 2025 contribution limit: $7,000 ($8,000 if age 50+)
- Income limits may restrict ability to contribute
- No Required Minimum Distributions (RMDs)
- More flexibility for early withdrawals of contributions
How to Choose Between 401(k) and Roth IRA
Traditional 401(k) might be better if:
- You expect to be in a lower tax bracket during retirement
- You want to reduce your current taxable income
- Your employer offers matching contributions
- You want to contribute more than the Roth IRA limits
Roth IRA might be better if:
- You expect to be in a higher tax bracket during retirement
- You want tax-free withdrawals in retirement
- You want to avoid Required Minimum Distributions
- You might need access to your contributions before retirement
- You want to leave tax-free assets to heirs
2025 Contribution Limits for Retirement Accounts
Understanding the current contribution limits is essential for maximizing your retirement savings. For 2025, the IRS has set the following limits:
| Account Type | Standard Limit | Age 50+ Catch-up |
|---|---|---|
| Traditional 401(k) | $22,500 | $7,500 (Total: $30,000) |
| Roth IRA | $7,000 | $1,000 (Total: $8,000) |
How to Use This Calculator
- Enter your current age and expected retirement age
- Input your current annual salary and how much you plan to contribute each year
- Estimate your expected annual investment return (7% is a common long-term stock market average)
- Enter your current tax rate and what you expect your tax rate to be in retirement
- Include your expected annual salary increase
- Click "Compare Options" to see the results
Frequently Asked Questions
Can I contribute to both a 401(k) and a Roth IRA?
Yes, you can contribute to both accounts simultaneously, as long as you stay within the contribution limits for each account type. This strategy, sometimes called "tax diversification," can give you more flexibility in retirement.
What if my employer offers a Roth 401(k) option?
A Roth 401(k) combines features of both accounts - contributions are after-tax like a Roth IRA, but you get the higher contribution limits of a 401(k). This calculator can still help you decide between pre-tax and Roth contributions.
How do I know what my tax rate will be in retirement?
While it's impossible to predict with certainty, consider factors like: expected retirement income sources, potential changes to tax laws, and whether you plan to live in a high or low tax state during retirement.
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Disclaimer: This calculator provides estimates based on the information you provide and makes several assumptions for simplicity. It doesn't account for all possible factors that might affect your retirement savings, such as changes in tax laws, varying contribution amounts over time, or investment performance fluctuations. Consider consulting with a financial advisor for personalized retirement planning advice.