Learn how to use Voyant to demonstrate the differences between Traditional and Roth 401ks.
Transcript
in this video I will be walking you through how to compare and contrast a Traditional 401(k) versus a Roth 401(k) in a client’s plan.
In today’s example, we’re working with Sylvia Monroe. She has been contributing 6% to her company’s Traditional 401(k). This year, however, the company introduced a Roth 401(k) option, and Sylvia wants to know whether she should continue contributing to the Traditional account or switch to the Roth.
To evaluate this, we’ll create a What If scenario called Roth 401(k).
Currently, Sylvia’s Traditional 401(k) is in the plan. First, we’ll end contributions to that account. Next, we’ll create a new Roth 401(k) starting today.
We’ll set the balance to zero (since nothing has been contributed yet), and we’ll have Sylvia contribute the same 6%—this time, entirely to the Roth. The employer contribution will still match her 6%, and we’ll link this to her employment. Once we’re done, we’ll click Done.
Right away, as the graph reloads, we can see Sylvia would still be able to meet her cash flow needs if she starts contributing to the Roth.
Now, let’s compare a few more details. Going to the LET’S SEE screen in Chart View, we’ll compare the two options side by side.
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First, looking at the Taxes chart, if we scroll to the final year, we can see the difference in cumulative taxes:
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With the Traditional 401(k), cumulative taxes are about $100,000 higher
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With the Roth 401(k), which uses after-tax dollars, taxes are lower overall
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Next, looking at the Assets chart, scrolling to the final year:
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With the Roth 401(k), Sylvia has about $389,000 remaining
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With the Traditional 401(k), she has about $186,000
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This means the Roth 401(k) leaves a larger cushion in the plan, providing additional protection against unexpected expenses.
This is a quick and effective way to show clients how your advice can provide meaningful long-term benefits.
I hope this was helpful! If you have any questions, you can always click the client name in the top right, select Request Support, enter your question, and share client access.