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RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Roth 401(k) vs. Traditional 401(k)

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Presentation on theme: "RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Roth 401(k) vs. Traditional 401(k)"— Presentation transcript:

1 RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. 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.

2 FACTS: 1.The federal government continues to provide tax-advantaged ways to save for retirement. 2.One of the most popular group-sponsored retirement plans is the traditional 401(k). 3.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. 4.Roth 401(k) were authorized by the Federal government in 2005 as an additional retirement planning tool.

3 Today’s Comparison Traditional 401(k) or Roth 401(k) Which one might be right for you?

4 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.

5 Traditional 401(k) vs. Roth 401(k) Age Pre-Tax Contrib Ending Value Tax 255,0005, ,000132, ,000151, ,000403, ,000452, ,0001,675,8380 After-Tax Contrib Ending ValueTax 3,6003,7181,400 3,60095,0891,400 7,200109,1812,800 7,200290,6402,800 14,400325,8565,600 14,4001,365,1475,600 Total Contributions: $475,000 Taxes Paid: $0 Total Contributions: $342,000 Taxes Paid: $133,000

6 Retirement Income Beginning at Age 65 Traditional 401(k) Gross Income Taxes Net Income Age: 65$117,309$32,847$84,462 Roth 401(k) Gross Income Taxes Net Income Age: 65$95,560$0$95,560 Cumulative Net Income over 20 years: $1,689,240 Cumulative Net Income over 20 years: $1,911,200

7 Final Conclusions: 1.Roth 401(k) plans are most advantageous for low tax bracket during years of contributions. Higher tax bracket on distributions. 2.Tax-Deferred growth of earnings are valuable in both plans. 3.Required minimum distributions (RMD at age 70 1/2 ) not required for Roth 401(k).


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