Convert 401k to Roth Ira Calculator

401(k) to Roth IRA Conversion Calculator

function calculateRothConversion() { var current401kBalance = parseFloat(document.getElementById('current401kBalance').value); var annualGrowthRate = parseFloat(document.getElementById('annualGrowthRate').value) / 100; var yearsToRetirement = parseFloat(document.getElementById('yearsToRetirement').value); var currentTaxBracket = parseFloat(document.getElementById('currentTaxBracket').value) / 100; var stateTaxRate = parseFloat(document.getElementById('stateTaxRate').value) / 100; var retirementTaxBracket = parseFloat(document.getElementById('retirementTaxBracket').value) / 100; if (isNaN(current401kBalance) || isNaN(annualGrowthRate) || isNaN(yearsToRetirement) || isNaN(currentTaxBracket) || isNaN(stateTaxRate) || isNaN(retirementTaxBracket) || current401kBalance < 0 || annualGrowthRate < 0 || yearsToRetirement < 1 || currentTaxBracket < 0 || stateTaxRate < 0 || retirementTaxBracket < 0) { document.getElementById('result').innerHTML = 'Please enter valid positive numbers for all fields.'; return; } // — Roth Conversion Scenario — var totalTaxRateOnConversion = currentTaxBracket + stateTaxRate; var taxOnConversion = current401kBalance * totalTaxRateOnConversion; var netAmountConvertedToRoth = current401kBalance – taxOnConversion; if (netAmountConvertedToRoth = 0 ? "Benefit" : "Cost"; var benefitColor = conversionBenefit >= 0 ? "green" : "red"; var resultHTML = '

Roth Conversion Details:

'; resultHTML += 'Amount Converted (Taxable): $' + current401kBalance.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Estimated Federal Tax on Conversion: $' + (current401kBalance * currentTaxBracket).toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Estimated State Tax on Conversion: $' + (current401kBalance * stateTaxRate).toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Total Tax Paid on Conversion: $' + taxOnConversion.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Net Amount Converted to Roth IRA: $' + netAmountConvertedToRoth.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Future Value of Roth IRA at Retirement (Tax-Free): $' + futureValueRoth.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += '

Traditional 401(k) Comparison:

'; resultHTML += 'Future Value of Traditional 401(k) (Pre-Tax): $' + futureValueTraditionalPreTax.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Estimated Tax on Traditional Withdrawal at Retirement: $' + taxOnTraditionalWithdrawal.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += 'Net Value of Traditional 401(k) at Retirement (After-Tax): $' + futureValueTraditionalAfterTax.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += '

Conversion Outcome:

'; resultHTML += 'Net ' + benefitText + ' of Roth Conversion: $' + conversionBenefit.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ''; resultHTML += '(A positive number indicates a benefit from converting, a negative number indicates a cost compared to keeping it in a traditional 401(k) until retirement.)'; document.getElementById('result').innerHTML = resultHTML; }

Understanding the 401(k) to Roth IRA Conversion

Converting a traditional 401(k) to a Roth IRA is a strategic financial move that can significantly impact your retirement savings. Unlike a traditional 401(k), which is funded with pre-tax dollars and taxed upon withdrawal in retirement, a Roth IRA is funded with after-tax dollars, and qualified withdrawals in retirement are completely tax-free.

Why Consider a Conversion?

The primary reason to convert a traditional 401(k) to a Roth IRA is the expectation that your income tax bracket will be higher in retirement than it is today. By paying taxes on the converted amount now, you lock in your current tax rate and ensure that all future growth and withdrawals from the Roth IRA are tax-free. This can be particularly advantageous for younger individuals, those in a temporary low-income period, or those who anticipate substantial income growth in the future.

Key Factors in the Conversion Decision:

1. Current vs. Future Tax Brackets: This is the most critical factor. If you believe your tax bracket will be higher in retirement, a Roth conversion is generally beneficial. If you expect to be in a lower tax bracket in retirement, it might be better to defer taxes with a traditional 401(k).
2. Years Until Retirement: The longer your money has to grow tax-free in a Roth IRA, the more significant the benefit. The power of compounding works in your favor over extended periods.
3. Ability to Pay Taxes Now: When you convert, the entire amount converted from your pre-tax 401(k) becomes taxable income in the year of conversion. You must have funds available outside of your retirement accounts to pay these taxes, as using converted funds to pay taxes reduces the amount that can grow tax-free in the Roth.
4. State Income Taxes: Don't forget to factor in state income taxes, which can add to the overall tax burden of the conversion.
5. Required Minimum Distributions (RMDs): Roth IRAs are not subject to RMDs during the original owner's lifetime, offering greater flexibility in managing your retirement income and estate planning.

How the Calculator Works:

Our 401(k) to Roth IRA Conversion Calculator helps you compare two scenarios:

• Roth Conversion Scenario: It calculates the immediate tax cost of converting your traditional 401(k) balance to a Roth IRA, the net amount that goes into the Roth, and its projected tax-free value at retirement.
• Traditional 401(k) Scenario: It projects the future value of your traditional 401(k) if left untouched and then estimates the taxes you would pay upon withdrawal in retirement, providing an after-tax value.

By comparing the after-tax future values of both scenarios, the calculator provides a "Net Benefit or Cost" of the conversion, helping you make an informed decision.

Example Scenario:

Let's say you have a $100,000 traditional 401(k) balance, expect a 7% annual growth rate, and plan to retire in 20 years. Your current federal tax bracket is 24%, with a 5% state tax rate. You anticipate being in a 15% federal tax bracket in retirement.

• Conversion Taxes: You'd pay approximately $24,000 (federal) + $5,000 (state) = $29,000 in taxes now.
• Net Converted to Roth: $100,000 – $29,000 = $71,000.
• Future Roth Value: This $71,000, growing at 7% for 20 years, would be approximately $274,947 tax-free at retirement.
• Traditional 401(k) Future Value (Pre-Tax): $100,000 growing at 7% for 20 years would be approximately $386,968.
• Traditional 401(k) Taxes at Retirement: At a 15% retirement tax bracket, you'd pay about $58,045 in taxes.
• Traditional 401(k) Net Value (After-Tax): $386,968 – $58,045 = $328,923.

In this specific example, the traditional 401(k) yields a higher after-tax value ($328,923) compared to the Roth conversion ($274,947), indicating a cost of approximately $53,976 for the conversion. This is because the expected retirement tax bracket (15%) is significantly lower than the current combined tax bracket (29%).

Use the calculator with your own numbers to see what makes sense for your unique financial situation.