Roth vs. Traditional IRA

Comparing Roth vs. Traditional IRA After-Tax Growth

A Traditional IRA is taxed on withdrawal; a Roth IRA is taxed upfront and withdrawn tax-free — which one leaves you with more money depends on whether your tax rate is higher now or in retirement. Enter how much you plan to contribute each year, how long it will grow, your expected return, and your tax rate today versus in retirement, and this calculator compares the two.

For the same pre-tax dollars available to save, a Traditional IRA contribution goes in whole and grows tax-deferred, with tax owed on the full amount when you withdraw it. A Roth IRA contribution is taxed today — so only $(1 - \text{your current tax rate})$ of that dollar actually makes it into the account — but it then grows completely tax-free, with nothing owed at withdrawal.

A useful fact worth knowing before you dig into the numbers: if your tax rate never changes between now and retirement, Traditional and Roth produce exactly the same after-tax result. The two only diverge because tax rates usually differ between today and retirement — a lower rate in retirement favors Traditional, and a higher rate favors Roth.

The Formula

$$\text{Traditional After-Tax Value} = FV(\text{contributions}) \times (1 - \vA{\text{Retirement Tax Rate}})$$ $$\text{Roth After-Tax Value} = FV(\text{contributions} \times (1 - \vB{\text{Current Tax Rate}}))$$

Where $FV(\text{contributions})$ is the standard future-value-of-annuity formula, compounding a level series of annual contributions at your expected return.

Worked Example

Contributing $6,000 per year for 30 years, growing at 7% annually, taxed at 24% today but only 22% in retirement:

1. Traditional IRA: the full $6,000/year grows to about $566,765 pre-tax, then loses 22% to tax on withdrawal, leaving ≈ $442,076.
2. Roth IRA: only $6,000 × (1 − 24%) = $4,560 actually gets contributed each year, growing tax-free to ≈ $430,741.
3. Traditional comes out about $11,335 ahead in this case, because the 22% retirement tax rate is lower than the 24% rate paid today.

Key Factors to Consider

• Predicting your own future tax rate is genuinely uncertain, which is the core difficulty in this decision. Future tax brackets, your future income level, and where you’ll live in retirement (state income tax varies) are all unknowns decades in advance — many people hedge this uncertainty by holding both Traditional and Roth accounts rather than betting entirely on one prediction.
• Roth IRAs have no Required Minimum Distributions during the original owner’s lifetime, unlike Traditional accounts. This means Roth funds can keep growing tax-free indefinitely if not needed, which is a meaningful advantage for estate planning or simply not being forced to withdraw funds on the government’s schedule — see the RMD Calculator for how that mandatory Traditional-account withdrawal schedule works.
• Roth IRA contributions phase out entirely above certain income levels, while Traditional IRA contributions never do. High earners may not be eligible to contribute to a Roth directly at all — the Roth IRA Contribution Limit Calculator checks this specific eligibility, and the Backdoor Roth Calculator covers the workaround strategy available to high earners.
• A Roth IRA’s contributions (not earnings) can generally be withdrawn at any time without penalty, unlike a Traditional IRA’s funds. This flexibility is a real, separate benefit some savers value beyond the pure tax-rate math this calculator focuses on — though tapping retirement savings early generally isn’t recommended regardless of account type.

Common Mistakes

• Assuming one account type is universally “better” rather than checking your own tax-rate assumption. As the worked example shows, whichever account wins depends entirely on whether your current tax rate is higher or lower than your expected retirement rate — there’s no single right answer for everyone.
• Forgetting that a Roth contribution costs more real take-home pay than the same dollar amount in a Traditional account. Since Roth contributions are taxed upfront, contributing the IRA limit to a Roth actually removes more from your paycheck than contributing the same limit to a Traditional account.
• Ignoring income limits on direct Roth contributions. Unlike Traditional IRAs, Roth contributions phase out above certain income levels — check eligibility before assuming a Roth contribution is even an option.

Useful to Know

• Not sure you’re even eligible to contribute directly to a Roth? Roth IRA Contribution Limit Calculator checks your contribution limit against your income and filing status.
• Earn too much to contribute directly? Backdoor Roth Calculator walks through the backdoor Roth strategy available to high earners.
• Already have a Traditional balance and considering converting it instead of making new contributions? Roth Conversion Calculator compares that different decision.