Thursday, May 04, 2006

Did you know about your 401K?

Roth 401K accounts are going to be available as of 2006. The limits as to what you can deposit into a 401K are much higher than what you can put into an IRA; I think the limit this year was $4500 for an IRA and something like $12,500 for a 401K. The deposit limits for a Roth 401K for 2006 will be $15,000. So you would have to earn enough to max it out, but imagine putting $15,000 per year into an account that can grow tax free until retirement.

Even if you're just able to put in $10,000 a year into a 401K making just 5%, in twenty years you would have $330,660 to withdraw tax free. $200,000 of that is deposits, the remainder is earned interest, so you got $130,660 in returns tax free. That's at 5%. If you increase that to 10% the numbers jump to $572,750. And that is interest paid yearly. If you deposit $1,000 per month ($12,000 per year) and earn 10% interest compounded monthly the number grows to $759,368.84. Shocked Even at 5% compounded monthly with $1,000 monthly deposits and 5% return you would have $411,033.67 after 20 years.

A Roth IRA limited to $5,000 per year deposits in twenty years at 10% annually is worth $286,375. A Roth 401K with the larger contribution limits would be very cool. Cool

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