To the original poster, I don't think you've missed out on anything. For us, it's more painful to pay the taxes now and hope for some distant, fuzzy benefit that may or may not happen later. Every time I've done the math-and we have--it comes up either a wash or actually better for us to delay paying taxes. It's been 10 years ago that I really looked into it, when we were about ½ way through our careers. I've now got at least 17 years until retirement, and the husband has at least 7, and nothing has changed. My husband and I have had very in-depth conversations about this-we're both engineers-but everyone's situation will be different.
Sorry this is so difficult to read, but there's not an easy way to present the numbers. For rough numbers, we make around $150K after adjusted gross income (AGI). This is with putting the full $36,000 in 401(k)'s. To pay taxes on that amount (taxes on $36K at 25% is $9K of taxes) is significant, AND it would raise us into a higher tax bracket-so another $1200 or so for that, and we'd probably lose other deductions. Such as, we have a rental house, that you cannot deduct losses (such as depreciation) if you make over $150K AGI unless your primary job is in real estate (it's not). So, we'd "lose" (or rather, delay) another $3500 tax benefit from that. So let's say to save the same amount in a roth401k vs 401 it costs $12K/year more in taxes.
We assume we'd have the same or higher taxes in retirement. Maybe we'll have less taxable pay, but less deductions too. Right now we've had college, day care, mortgage interest + whatever else that we won't have in the future.
Roth 401(k)'s do transfer to the heirs tax free, which would be a great benefit (and harder for me to assign a defined # benefit). And the other benefit NOT mentioned here is that if you do a large withdrawal you don't get the tax bump from it. I know in talking with other people that if you want $20K to 150K or more in one lump sum that's a heck of a tax hit. This might be for a vacation, buying a car, or putting a deposit/paying for a new house while still living in the old one, etc. So this is certainly not outside the norm for any retiree, and is fairly like to happen at least once or twice in retirement. If you withdraw $150K (in addition to your normal withdraw rate), at a 25% tax rate, that's $30K in taxes on just that. If you assume that causes a 3% higher tax bracket, that's an additional $7500 tax charge just to get your money out in that lump sum. (25% tax rate raised to 28%)
Our solution-better for us to stay the course with traditional 401k's & get the upfront tax benefit, and fund our Roth's. If we do the $5K each, starting right now that comes to $120,000 for us until our respective retirements-plus whatever market gains (or losses). And we could do catch ups if that's not enough. That's enough money for us in case we need to withdraw a large lump sum. And this would essentially be the same as paying the $10K we'd pay in increased taxes to do the roth 401k, and this way we'd still get some of the same benefits with none of the painful tax bite now.
If anyone out there can do the full $36K (and catch up contributions if 50 yrs old or older), then the full $5K/year (and the catchups for Roths), AND you still have money to invest, then just put it in a regular stock broker account. You can always access it, you only pay 15% capital gains, and you've got MUCH greater control over it than in a 401(k) account. And, heaven forbid, if it loses money, you can count it off your taxes. Can't do that for your roth or 401(k).
In retirement, we'd use pension, social security, 401(k) withdraws, and Roth's last & only if needed. So, we'd pay taxes along the way on the 401(k), and when we die, who knows how much would be left for the heirs to pay taxes on? Maybe nothing..maybe $1M. If it's $1M, and the heirs pay higher taxes at 39.5% tax rate, that's 15% higher taxes. Comes to $150K more, or 12.5 years payback time. (ie, if I save 10K/year, after 12.5 years it's better to delay paying taxes). I haven't really factored in the alternate minimum withdraws at age 70 ½, but I suspect that it doesn't change my conclusion any.
It's always interesting to see if someone can sway me to do a roth 401(k), as maybe I've overlooked something.