UPS Enrollment

Scenario 1: Jada

Earns $30,000 per year; age 25 today and plans to retire at age 65.

She has a combined federal and state tax rate of 28% today, but expects that taxes will increase and will be at 36% or higher at retirement.

Contributes 6% of her pay.

The chart below shows the potential after-tax value at Jada's retirement after 40 years if she made pre-tax versus Roth only contributions, as well as total taxes paid.

In Jada’s case, Roth 401(k) contributions may be the better choice for her. Even though pre-tax contributions will lower her taxes today, her 401(k) account value at withdrawal will be impacted by her higher tax rate. She pays more in total taxes and has less for retirement if she chooses to save pre-tax.

	If Jada contributes pre-tax only	If Jada contributes Roth 401(k) only
Contributions to Jada’s account each year	$1,200	$1,200
Value of contributions after 40 years	$191,017	$191,017
Less taxes on distribution at retirement assuming 36% tax rate	$68,766	$0
Amount distributed after taxes	$122,251	$191,017
Jada’s take home pay each year based on her contributions and 28% tax rate	$20,736	$20,400
Income taxes paid over 40 years at 28% tax rate	$322,560	$336,000
Total Taxes Paid	$391,326	$336,000

For demonstrative purposes only and not representative of any investment. Assumes monthly contributions with a 6% of pay with a 6% rate of return compounded monthly. Does not account for any pay increases over time. Example should not be taken as tax or investment advice.

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