Question

I was listening to NPR’s Weekend Marketplace on the drive home and they were talking about being sure to fund our 401(k) plans. If I decide to begin saving for retirement now, how do I choose between the “traditional” and the Roth versions offered by my employer? All I can afford for the contribution and any income taxes (in total) is $12,000.

compare his expected after-tax retirement fund balances from the two alternatives (traditional and Roth) for the one scenario below. include tables detailing your calculations

For all three scenarios, you must assume the following information:

• Anticipated marginal tax rate until retirement is 25% (Federal and state)
• Annual total commitment of $12,000 per year (in pre-tax dollars) until he retires in 30 years (note that you must convert the $12,000 into an after-tax amount for any contributions that are not excludible from current gross income)
• Annual earnings rates in all funds are 5% (before-tax rate)

Scenario #1

• Anticipated marginal tax rate at retirement is 30% (Federal and state)

Answer 1

Year	Opening	Additional Invetment	Fund Return @ 5% (Opening balance+ Additional investment+ 5%)	Closing Balance (Opening+Additional Investment+Fund Return
1	0	12000	600	12600
2	12600	12000	1230	25830
3	25830	12000	1892	39722
4	39722	12000	2586	54308
5	54308	12000	3315	69623
6	69623	12000	4081	85704
7	85704	12000	4885	102589
8	102589	12000	5729	120318
9	120318	12000	6616	138934
10	138934	12000	7547	158481
11	158481	12000	8524	179005
12	179005	12000	9550	200555
13	200555	12000	10628	223183
14	223183	12000	11759	246942
15	246942	12000	12947	271889
16	271889	12000	14194	298083
17	298083	12000	15504	325587
18	325587	12000	16879	354466
19	354466	12000	18323	384789
20	384789	12000	19839	416628
21	416628	12000	21431	450059
22	450059	12000	23103	485162
23	485162	12000	24858	522020
24	522020	12000	26701	560721
25	560721	12000	28636	601357
26	601357	12000	30668	644025
27	644025	12000	32801	688826
28	688826	12000	35041	735867
29	735867	12000	37393	785260
30	785260	12000	39863	837123

Particulars	Traditional Plan		Roath 401(k)
Total Contribution over 30years	12000*30	360000	12000*30	360000
Total Return Before Tax	As per table at the end of 30 year	837123	As per table at the end of 30 year	837123
Tax @ retirement	837123*30/100	251136.9	Tax Advantage	0
Value at the time of Retirement after taxes	837123-251136.90	585986.1	837123-0	837123