401k
401k Information

Roth 401k Calculator

There are many advantages to having a Roth IRA account instead of a traditional IRA. As with any money management solution, one type of individual retirement account isn’t necessarily better for everyone. But a majority of inv 00004000 estors may seek comforts in Roth IRA benefits including tax advantages, distribution flexibility, the ability to name beneficiaries, the option to withdraw penalty-free funds toward a home purchase and additional, appealing built-in considerations for married couples.

You may already have a traditional IRA account; for example, this may have been the system that your employer had in place when you were hired. In this instance it’s a matter of converting from one type of retirement account to the other. But once you’ve decided that you want to initiate a conversion, what are steps that help you achieve this goal?

First, you’ll want to figure out which of your assets can convert. In most cases, your transference from a traditional IRA is fairly straightforward, and all deductible and nondeductible assets qualify; 401(k) assets are also eligible.

Second, you’ll want to know what this process will cost you. Because conversion costs may be quoted as a percentage rate, this means that the more money you’re converting over, the more you’ll have to pay. Be sure to factor in the price of converting against the benefits of a Roth IRA account before initiating the proceedings.

But the cost doesn’t stop there; you also want to find out what the conversion will cost you in terms of taxes. Although you don’t pay taxes when you ultimately withdraw cash from a Roth IRA, you have to factor in the cost of contributing to it – which you do need to pay taxes on at the time of the deduction (unless you investigate deferrals, deductions from your earnings or spreading out payments). Ostensibly, your financial supervisor or the establishment that handles your retirement accounts will do the math for you and supply these figures. Still, it’s something you need to take into account in the midst of this process. And in terms of this counsel, you also need to pay the professional overseeing your transfer.

Third, you need to consider your current and future income. All of these are primary variables that can strongly impact whether a Roth IRA is going to pay itself off for you once the previously mentioned costs are deducted. If you stand to make less money in retirement than you’re making right now, your tax brackets may shift so that you’ll be at a significant disadvantage when you withdraw your untaxed funds. You may wind up paying more to contribute to them than it would have cost to pay when taking them out. Your bank or a trusted financial advisor can walk you through the process of converting a traditional IRA to a Roth IRA; ask for tips to streamline, expedite and fund the process.

Frequently Asked Questions

  1. QUESTION:
    where can I find a good retirement calculator online?
    I want a calculator that separates pre-taxed savings accounts like a 401k and after tax accounts like the Roth IRA. Few websites have this.

    • ANSWER:
      An on line calculator will be of minimum value, because there are too many variables. Each individual’s situation is unique. I’ll give you a couple of on-line calculators, but they will be of limited value.
      cgi.money.cnn.com/tools/ retirementplanner/retirementplanner.jsp
      www.aarp.org/work/retirement-planning/ retirement_calculator/
      apps.finra.org/Investor_Information/ Calculators/1/RetirementCalc.aspx

      I suggest that you get two books to help you with retirement planning:
      • Personal Finance For Seniors For Dummies by Eric Tyson and Robert C. Carlson
      • The Complete Idiot’s Guide to Retirement Planning by Jeff Wuorio

      Please don’t be offended by the name of the books. For Dummies and Complete Idiot’s Guide are both publishing companies. They contract with authors who are experts in their field and also have the ability to put concepts into plain English.

  2. QUESTION:
    Financial help! 401k, IRA, stocks, bonds, CD’s etc…?
    I am 23 years old and just started a new job 6 months ago. I only get paid like…00 a month and am putting away only 0 per month towards my 401K. The company I work for has a really great “model allocation” full of stocks and bonds that are supposedly ideal. (For example, the SMP(?) I think, was down -4-8% last year, and they were at 8%) I don’t even know what that means, but that’s what they said. So anyway, it’s a good deal. However, I don’t want to stay with this company forever. Here are my questions:
    1. Is a Roth IRA better? Should I do both?
    2. I want to retire early. I know this depends on how much money I make in my job, but how much money do I need to contribute monthly to retire at like…49? Is there a calculator?
    3. Why put money into CD’s? Is it just a savings account that gives you more money in the end?
    4. If I leave my company, should I invest in the big companies like GM, GE, etc…instead of the next company I work for?
    Oh my company contributes 1% or 50 cents on the dollar.

    And my company invests the money into various companies in their “model allocation.” Our company doesn’t have a stock themselves, so they choose the best ones. Some are agressive, some not so much. It’s a little more on the agressive side. But if I weren’t a part of this company I wouldn’t be able to invest in them. (Like Brandes Investment Partners)

    • ANSWER:
      If your company matches any portion of your 401K you should keep contributing to it. I would up it to 0 a month or 10% gross if you can. The more you put in when you are young the better. I like to stick to mostly Index funds, esp I like the Vanguard funds since they are low cost. Yu can read about them on-line. If you are retiring in 30-40 years you want solid long term investments, not all your money in 1 company. Index funds spread out your money in many different solid companies. I subscribe to Money magazine, for .95 a year you can get a lot of good advice for beginning investors. Yahoo Pers Finance has great retirement calculators. CDs are for money you do not need right away, not really a good choice for short or long term savings,not at today’s rates at least. If you leave your company, you can trasfer your savings right into an IRA from your 401K and keep your tax savings.

  3. QUESTION:
    ROTH question…….?
    There was one question here that has made me think.

    A man about to retire – lets say 62
    had a 401K that he wanted to transfer into an IRA then transfer to a ROTH.

    All he has in retirement savings (401K) is 150K.
    I suggested he run the calculators since he may be better off leaving the money in the regular IRA since he will be in a very low tax bracket in retirement.

    Would you advise him to pay all the taxes upfront to transfer to the ROTH.
    This could knock him into a higher tax bracket.

    What would you do?
    I’m young, and I guess I’m missing something.

    • ANSWER:
      For the most part… converting to a regular IRA would be the most they should do. Paying higher taxes is only one part of what’s lost……. now you’ve got money that goes to Uncle Sam, instead of staying in the account to earn more money.

  4. QUESTION:
    Am I saving enough for retirement?
    I’m 34 years old and have saved over ,000 so far in a 401k, IRA, and Roth IRA. I’m putting 20% into my 401k, my employe is matching 4.5%, so that’s around ,000/yr. I’m also putting 00/yr into a Roth IRA, and 0/mo into my emergency fund which has almost ,000 (savings). I’m being very aggressive right now, because I feel like I might be behind on my retirement savings, but it’s hard to tell. I’ve used retirement calculators but never know if I can count on them.

    • ANSWER:
      You are doing great so far…. here’s the situation for you and all 34 year olds starting now.

      investments tend to double every 10-12 years so work it backwords.
      to have 1 million at 67
      you must have 500k by 56
      you must have 250k by 45
      you must have 125k by 34
      reaching any of these numbers represent the point at which you can stop saving for retirement if you can live on 1 million dollars

      is 1 million at 67 high or low
      1 million can be expected to generate 60K/year

      inflation tends to half you money every 24 years
      so at 34 60K/year starts to decline
      when you’re 58 it would be like living on 30K today
      at 67 it would be like living on 23K today

      but it doesn’t stop there, because your investment stops growing at 67 when you start living on the income but inflation doesn’t stop because you will live for another 25 years so your money will halve again, to about 11K when you die..

      Now there are other ways to play the investment, and I fully expect social security to contiue in some form so that will supplement your income as well. But you can see the general trend and problems.

      also, buying a house is a good idea too becase when it is paid off, you live almost free. but buying a house costs a lot of money and takes away from retirement

      children are a large expense too.

      The voters have decided that we as individuals should bare most of the burden of retirement and medical expenses and companies are just too happy to agree.

      I am saving a little over 42K/year and I’m paying down my house faster. We live modestly but comfortably. But the vast majority of americans can’t afford to save like this. Retirement for most people is a thing of the past

      As you can see, a million dollars ain’t what it used to be….
      good luck and keep saving

  5. QUESTION:
    anyone know a site like mint.com, but for “fantasy financial portfolios”?
    So basically this is what I’m trying to do. I just read the book “millionaire next door” and I am now interested in personal finance and managing money.

    I am 22 years old, don’t have credit cards or bank accounts (I’m a student and my parents pay), and I will be in school for another 8-10 years to become a physician. I’m looking for a free personal finance site, where I can essentially make “theoretical” or “fantasy” financial decisions. Like for example, if I assume that I will make 250,000 a year at age 30, I would love to have a “fantasy” portfolio that shows how I could budget that, from paying student loans, to theoretical mortgages/car payments and investments (that make fundamental assumptions of like average 8% return compounded annually). I’d love to see how my 401k/roth ira would possibly add up too by age 60 etc, and how frugally I need to live to achieve my goals. That way I could see what a more frugal lifestyle looks like, what a reckless style of spending would lead, and what a moderate style would be like. Tweaking around with this stuff now could defintiely help me in the future, so I don’t become like 90+% of doctors out there who are horrific with finances and live way above their means, and end up with little retirement savings.

    Mint.com only works with real money, and actual bank accounts/credit cards. is there a site where I can play around with a budget of theoretical money to plan ahead for my finances. Something that is above simple calculators etc, but a complex site like mint.com that really takes into account lots of things. Thanks!

    • ANSWER:
      Just about every online broker has a “paper money” part of the site where you can trade and invest play money. I prefer Think or Swim, but there are literally dozens of sites out there. You just create an account and can start investing pretend money in whatever you would like.

  6. QUESTION:
    is there a site like mint.com to keep track of “potential” finances?
    So basically this is what I’m trying to do. I just read the book “millionaire next door” and I am now interested in personal finance and managing money.

    I am 22 years old, don’t have credit cards or bank accounts (I’m a student and my parents pay), and I will be in school for another 8-10 years to become a physician. I’m looking for a free personal finance site, where I can essentially make “theoretical” or “fantasy” financial decisions. Like for example, if I assume that I will make 250,000 a year at age 30, I would love to have a “fantasy” portfolio that shows how I could budget that, from paying student loans, to theoretical mortgages/car payments and investments (that make fundamental assumptions of like average 8% return compounded annually). I’d love to see how my 401k/roth ira would possibly add up too by age 60 etc, and how frugally I need to live to achieve my goals. That way I could see what a more frugal lifestyle looks like, what a reckless style of spending would lead, and what a moderate style would be like. Tweaking around with this stuff now could defintiely help me in the future, so I don’t become like 90+% of doctors out there who are horrific with finances and live way above their means, and end up with little retirement savings.

    Mint.com only works with real money, and actual bank accounts/credit cards. is there a site where I can play around with a budget of theoretical money to plan ahead for my finances. Something that is above simple calculators etc, but a complex site like mint.com that really takes into account lots of things. Thanks!

    • ANSWER:
      I think Intuit may have some software for that, if all else fails, you can visit your local bank and they’ll play it all out for ya.

  7. QUESTION:
    anyone know a site like mint.com for “fantasy finance”?
    So basically this is what I’m trying to do. I just read the book “millionaire next door” and I am now interested in personal finance and managing money.

    I am 22 years old, don’t have credit cards or bank accounts (I’m a student and my parents pay), and I will be in school for another 8-10 years to become a physician. I’m looking for a free personal finance site, where I can essentially make “theoretical” or “fantasy” financial decisions. Like for example, if I assume that I will make 250,000 a year at age 30, I would love to have a “fantasy” portfolio that shows how I could budget that, from paying student loans, to theoretical mortgages/car payments and investments (that make fundamental assumptions of like average 8% return compounded annually). I’d love to see how my 401k/roth ira would possibly add up too by age 60 etc, and how frugally I need to live to achieve my goals. That way I could see what a more frugal lifestyle looks like, what a reckless style of spending would lead, and what a moderate style would be like. Tweaking around with this stuff now could defintiely help me in the future, so I don’t become like 90+% of doctors out there who are horrific with finances and live way above their means, and end up with little retirement savings.

    Mint.com only works with real money, and actual bank accounts/credit cards. is there a site where I can play around with a budget of theoretical money to plan ahead for my finances. Something that is above simple calculators etc, but a complex site like mint.com that really takes into account lots of things. Thanks!

    • ANSWER:
      There are sites like moneytrackin.com and yodlee.com. Not sure if you can play with investments and automatic calculations on investments/ mortgages though.

  8. QUESTION:
    Understanding the interest calculation on my student loans.?
    I have regularly paid the amount on my consolidated, subsidized student loan (sallie mae). For years, i’ve subscribed to the conventional wisdom of ‘why on earth would you pay off such a cheap loan?” Invest instead, you’ll earn more and it’ll wash out the low interest rate you’re paying (2% subsidized loan).

    Here’s are the data, what I can’t understand is the amortization (right word?) of the loan.

    Sallie Mae
    Original consolidated loan amount: ,291.72
    Outstanding Principal Balance: ,656.82 (Can pay off the loan with check today for ,664.26)
    Monthly Payment: .24 for 83 months
    With a Final Payment on 2/28/2018 .21, I’d be paying a total of ,993.13.

    I figure we’re only talking about a few hundred bucks whether I pay it off now or keep paying the schedule and invest the cash…but my current ten year run in the market hasn’t inspired a lot of confidence in a consistent annual return. When CD/MMR rates were 4-5%, I understood the logic but now when you’re scrounging for 1.5% then doesn’t it make sense to pay it off?

    For background, I have a stable income, no other debt, more than 6 months rainy day (at those paltry rates we’re getting right now)no real interest in putting a down payment on a house (CA real estate is absurd and the k we’re talking about is a drop in the bucket anyway) and max out my ROTH and employer match in 401k.

    Anyway, real question is, how does a current outstanding balance of 56.82 at 2% fixed interest rate turn into 93.13? the loan calculators i have out there seem to say total interest paid should only be about half that over the course of the next 7 years. Can anyone explain this to me?
    Bert, Thank you for your response. You are correct, the information I gave doesn’t add up and that’s for a couple reasons. 1) original payment schedule on consolidation had my monthly payment at 79.54, 2) I adjusted my payment schedule in April 2006 increasing my monthly payment to 83.24, and 3) I have made some extra payments of 829.54 in oct 2005 (and small payments adding up to 241.18 during 2009/2010). Apologize my confusion if it should be obvious, but my main question is that if i pay my scheduled 83.24 for the remainder of the loan, am I really paying 00 more in interest payments over the next 84 months

    • ANSWER:
      The net present value of the loan or rather the net present cost of the loan to you would be how much money you would have to put into a risk free investment now in order to generate the cash flow to make those payments. It’s customary to use the 10 year US Treasury Bond rate as the risk free rate in such calculations but in reality it should be the rate that you are confident that you can invest at. The 10 year US Treasury Bond rate is currently 3.28% per annum which is about 0.27% per month therefore the net present cost of your loan is about:

      .24 * ( 1 – (1/(1+0.27/100))^(83+1) ) / ( 1 – 1/(1+0.27/100) )

      which is:

      ,265.30

      Just adding up the payments doesn’t make for a realistic comparison.

      That’s neglecting all the weirdness that you’ve introduced with the payment schedule adjustments and extra payments and the residual amount in the last payment.

      Basically, it would be in your best interest to just pay off the loan when you are comparing it with an available 3.28% alternative investment being available.

      With a little bit of trial and error, you’ll see that an interest rate of 6.342% nominal per annum compounded monthly or 6.53% effective per annum would be required to make an investment opportunity attractive compared to paying off your loan with the ,664.26. Since the average per annum increase of the entire stock market over it’s entire history is about 6% per annum, I would say pay off the loan, you would have to do better than investing in index funds to make it worthwhile. If you could get into some of the more exclusive funds like Warren Buffett’s Berkshire Hathaway, Ed Thorpe and Associates or the Pabrai fund then the alternative would be worth it but you realistically only have a 50% chance of doing better than paying off the loan.

      Student loans tend to be mandated by the government and are loans that the banks really don’t want to be making so it may be that they have the feature of allowing you to pay off the loan right now at a discount just to get it off their books. Perhaps that’s why the numbers aren’t working out but you’re right it would take a ,447.33 balance to warrant 83 monthly payments of .24 at an interest rate of 2% per annum compounded monthly i.e.: 2.02% per annum effective, indeed I would expect a current balance of ,656.82 at 2% per annum compounded monthly interest over 83 payments to have a payment of .03 at which point it would only take an alternative investment opportunity of 2.382% per annum compounded monthly or 2.41% per annum effective to compete with paying it off and that’s likely to be quite achievable on the stock market just by investing in a total market ETF like VTI or SPY or even by investing in solid dividend paying stock like KO (Coca-Cola) or Verizon. Coca-Cola will give you about 2.8% return per annum just on the dividends never mind capital gains.

      Increasing your payments and putting extra in should’ve reduced the number of outstanding payments shortening your term and reducing the interest that you would be paying. It could be that you no longer have 83 payments remaining but rather 72 payments remaining with the last payment being .57 (or 73 payments with the last payment being .36), in which case you would need an alternative investment opportunity of 1.93% per annum compounded monthly in order to compete with paying off your loan and it should be easy to achieve this on the stock market.

      In summary, something is funky with that loan as it doesn’t add up right, if it is indeed another 83 monthly payments of .24 that you could have disappear by paying ,664.26 today then do so. However, it’s likely that you’ve confused the number of remaining payments and really have only 72 payments left to go in which case invest in something like Coca-Cola and keep the loan. Basically call your bank and find out how many payments are left.