401k vs roth irasThe debate between the traditional 401k and roth iras has been around for over a decade. After extensive research our opinion is that it is six of one, half dozen the other. Meaning each one has their strengths and each one has their weaknesses. It is really up to the individual which one they should choose. However this website is geared for the individual looking to seek information regarding their own techniques for investing. That is why we think the roth is the better choice for the specific individuals who are passionate about taking their retirement into their own hands. The following is a brief summary of the debate in terms of numbers. We used a model that incorporated simple percentages so that the number sequences would not be too complex. The following is just a model and will vary depending on each individual. It is to help show the real monetary difference between each individual retirement account. Assuming at age 30 your current tax bracket is 25% and you contribute $4,000 every year of tax free income into a traditional 401 or contribute $3,000 every year of taxed income ($4,000-25% tax) into a roth for 35 years, with an average annual rate of return of 10%. At age 65 you will end up with a higher principal in your 401. The roth's principal will be approximately $813,073 and the 401k's principal will be approximately $1,084,097. That is a total difference of $271,024 between the two.
Bankrate.com has great retirement calculators for debating 401k vs Roth iras At age 65 if you decide to retire and there is still an average annual rate of return of 10%. Taking just the interest earned and not the principal out of the account. The amount of interest earned after taxes would be virtually equal between the two accounts. This is because of the taxes incurred by the traditional 401k. The following graph should illustrate this assumption.
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