Employer Retirement Plan vs. Taxable Investment
You can use this calculator to compare the financial outcomes of contributing a percentage of gross pay to an employer retirement plan (such as a 401(k) or 401(b) plan) versus investing the after-tax amount of such pay in a taxable investment account.
To open this calculator, click Calculators in the toolbar, and then click Retirement > Employer Retirement Plan vs. Taxable Investment in the left panel.
You can export the data as a PDF file or clear all data that you entered. For more information, see Financial calculators.
Example
An individual wants to contribute 10% of his income to a retirement account, and wants to know if a tax-sheltered account is worth the limitations on withdrawals that come with it.
Field | Input |
---|---|
Average monthly income | $5,000 |
Employee contribution | 10% |
Federal tax rate | 28% |
Years of contributions | 10 |
Annual rate of return | 8% |
Average tax rate during retirement | 15% |
Years of retirement | 20 |
Annual rate of return during retirement | 5% |
In this example, the individual would accumulate an after-tax monthly income of $513.13 from the tax sheltered account or $363.07 from the taxable account.
Note: The federal and state tax rates applied to contributions is usually the marginal tax rate. During retirement, the distributions from a retirement account often span many tax rates. For the distribution period (retirement), enter the average tax rate to which the distributions will be subjected. If the retirement plan account distribution is the only taxable income, the average tax rate equals the total tax liability divided by the taxable distribution.
Internal notes
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