🧾 Tax Implications: How to Read Your Results

 

🟥 1. 401(k) & Traditional IRA (Pre-Tax Accounts)

These are the “pay taxes later” accounts.

• Your contributions go in pre-tax

• You save taxes now at your current tax rate

• The entire account grows tax-deferred

• At retirement, every dollar you withdraw is taxed as ordinary income

 

In the calculator:

• Future Value (Before Tax) → total account size at retirement

• Estimated Taxes (Net) → how much of that future value will likely go to the IRS

• Net After-Tax at Retirement → what you actually keep

• You’ll often see:

  • ✅ Tax Saved Now (upfront win)

  • ❌ Tax Paid Later (big bite at retirement)

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💡 Interpretation:
Pre-tax accounts are powerful when your current tax rate is higher than your future retirement tax rate. You’re trading today’s big tax cut for tomorrow’s smaller tax bill.

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🟪 2. Roth IRA (After-Tax Account)

This is the “pay taxes now, never again” account.

• Your contributions are after-tax

• You get no deduction now

• The account grows tax-free

• Withdrawals in retirement are 100% tax-free (if rules are met)

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In the calculator:

• Estimated Taxes (Net) will usually show as $0.00

• Net After-Tax at Retirement ≈ the full future value

• Net Gain After Tax shows the true compounding power with no tax drag

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💡 Interpretation:
Roth shines when your current tax rate is low or when you expect taxes to be higher in the future. You “rip the Band-Aid off” now so the IRS never touches that growth again.

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🟧 3. Taxable (Brokerage) Accounts – When You Choose It for Custom Types

If you select “Taxable (After-tax w/ tax on gains)” for a custom account:

• Contributions are after-tax (no deduction)

• The account grows normally, but

• The gains are taxed when you sell (we model it using your retirement tax rate as a simplification)

 

In the calculator:

• Future Value (Before Tax) → account size at retirement

• Estimated Taxes (Net) → tax on gains only, not on your original contributions

• Net After-Tax at Retirement → future value minus taxes on gains

• Often lands between:

  • ❌ Worse than Roth (because gains are taxed)

  • ✅ Better than leaving money in cash

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💡 Interpretation:
Taxable accounts are flexible (no withdrawal penalties) but less tax-efficient. Great for extra investing after you’ve maxed tax-advantaged buckets.

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🟩 4. How to Read “Net Gain After Tax”

For each row:

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Net Gain After Tax = Net After-Tax at Retirement − Total Principal (current balance + new contributions)

 

This tells you:

• How much true growth you got

• After all taxes

• After accounting for what you actually put in

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Use this to compare:

• “If I use a 401(k), how much am I really ahead after tax?”

• “If I use a Roth IRA, is my net gain higher or lower?”

• “If I use a taxable account, how much growth am I losing to taxes on gains?”

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🧠 5. How to Use This in Life’s Wealth Quest

Once you run a scenario:

1. Compare 401(k) vs Roth IRA:

   • If Roth’s Net Gain After Tax is higher → consider prioritizing Roth.

   • If Traditional’s Net Gain After Tax is higher → pre-tax might be better for now.

2. Add a Taxable Row (Custom 1):

   • Show people how much they lose by investing in a regular brokerage instead of a retirement container.

   • Great visual tie-in to Step 6aa: The Difference in Retirement Accounts.

3. Connect it to your tax lessons (4b–4bg):

   • Show how shifting contributions between Traditional and Roth changes the tax picture.

   • Use this as a live “Tax Implications lab” right on your site.