UPS Enrollment

Scenario 2: Marty

Earns $60,000 per year; age 50 today and plans to retire at age 65.

He has a combined federal and state tax rate of 28% today, and expects to pay a lower rate of 15% in retirement.

Contributes 6% of his pay.

The chart below shows the potential after-tax value at Marty’s retirement after 15 years if he made pre-tax versus Roth 401(k) contributions, as well as total taxes paid.

For Marty, he could split his contributions between pre-tax and Roth 401(k) as the difference in total taxes paid is not significant. Also, while he assumes he’ll be in a lower tax rate in retirement, nobody can predict the future. The portion he has in Roth 401(k) savings will give him a tax-free income source in retirement.

	If Marty contributes pre-tax only	If Marty contributes Roth 401(k) only
Contributions to Marty’s account each year	$3,600	$3,600
Value of contributions after 15 years	$86,186	$86186
Less taxes on distribution at retirement assuming 15% tax rate	$12,928	$0
Amount distributed after taxes	$73,258	$86,186
Marty’s take home pay each year based on his contributions and 28% tax rate	$40,608	$39,600
Income taxes paid over 15 years at 28% tax rate	$236,880	$252,000
Total Taxes Paid	$249,808	$252,000

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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