Transcript Thomas slideshow

Roth 401(k) vs. Traditional 401(k)
Presented by:
Mike Thomas, CLU, CFP
Director, Wealth Management
RSM McGladrey Wealth Management services are made available through RSM McGladrey, Inc., an SEC
registered investment advisor.
RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities.
FACTS:
1.
2.
3.
4.
The federal government continues to provide tax-advantaged ways
to save for retirement.
One of the most popular group-sponsored retirement plans is the
traditional 401(k).
IRAs and Roth IRAs are investments used as supplements to
group-sponsored retirement plans, or as alternative savings
vehicles when group sponsored retirement plans are not available.
Roth 401(k) were authorized by the Federal government in 2005
as an additional retirement planning tool.
Today’s Comparison
Traditional 401(k)
or
Roth 401(k)
Which one might be right for you?
Assumptions:
• Annual contributions of:
– $5,000 for ages 25 – 39
– $10,000 for ages 40 – 49
– $20,000 for ages 50 – 64
•
•
•
•
Tax bracket: 25%
Growth of Investment: 7%
Goal: Compare highest “net” income at retirement.
Retirement Income: 7% of account values, 28% tax
bracket.
Traditional 401(k)
Age
Pre-Tax
Contrib
Ending
Value
vs.
Tax
Roth 401(k)
After-Tax
Contrib
Ending Value
Tax
25
5,000
5,164
0
3,600
3,718
1,400
39
5,000
132,068
0
3,600
95,089
1,400
40
10,000
151,640
0
7,200
109,181
2,800
49
10,000
403,666
0
7,200
290,640
2,800
50
20,000
452,577
0
14,400
325,856
5,600
64
20,000
1,675,838
0
14,400
1,365,147
5,600
Total Contributions:
$475,000
Taxes Paid: $0
Total Contributions:
$342,000
Taxes Paid: $133,000
Retirement Income Beginning
at Age 65
Roth 401(k)
Traditional 401(k)
Age: 65
Gross
Income
Taxes
Net
Income
$117,309
$32,847
$84,462
Cumulative Net Income
over 20 years:
$1,689,240
Age: 65
Gross
Income
Taxes
Net
Income
$95,560
$0
$95,560
Cumulative Net Income
over 20 years:
$1,911,200
Final Conclusions:
1.
2.
3.
Roth 401(k) plans are most advantageous for low tax
bracket during years of contributions. Higher tax bracket
on distributions.
Tax-Deferred growth of earnings are valuable in both
plans.
Required minimum distributions (RMD at age 70 1/2 ) not
required for Roth 401(k).