1. What is a Roth 401k?

A Roth 401k is a retirement savings plan that allows you to contribute after-tax dollars, with tax-free growth and withdrawals in retirement. Unlike traditional 401k plans, Roth 401k contributions don't provide an immediate tax deduction.

2. How Does the Calculator Work?

The calculator uses the future value formula for Roth 401k:

Where:

• \( Contribution \) — Annual contribution amount (USD)
• \( r \) — Annual rate of return (decimal)
• \( n \) — Number of years invested

Explanation: The formula accounts for regular annual contributions growing at a compound rate over time, with the final year's contribution earning one additional period of growth.

3. Importance of Roth 401k Planning

Details: Proper Roth 401k planning helps ensure tax-free income in retirement, especially valuable if you expect to be in a higher tax bracket later or want to minimize required minimum distributions.

4. Using the Calculator

Tips: Enter your planned annual contribution, expected annual return rate (typically 5-8% for balanced portfolios), and number of years until retirement. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between Roth and traditional 401k?
A: Roth uses after-tax money (tax-free withdrawals), while traditional uses pre-tax money (tax-deferred withdrawals).

Q2: What are the contribution limits for Roth 401k?
A: For 2023, the limit is $22,500 ($30,000 if age 50+), shared with traditional 401k contributions.

Q3: When can I withdraw from Roth 401k tax-free?
A: After age 59½ and at least 5 years after your first Roth contribution.

Q4: What return rate should I use?
A: Conservative estimates use 5-6%, moderate 7-8%, aggressive 9-10% based on your investment strategy.

Q5: Are employer matches taxed differently?
A: Yes, employer matches go into a traditional 401k account and will be taxed upon withdrawal.