Roth or Traditional?

How does the calculator compare Roth and Traditional?

It assumes you take the same amount of spendable cash out of your paycheck either way, so you are comparing like with like. With Roth, that cash goes in after tax and is never taxed again. With Traditional, the same out-of-pocket cash buys a larger contribution, because the money you would have paid in tax stays invested inside the account too, and the whole balance is taxed once when you withdraw it. Each dollar is taxed exactly once: Roth on the way in, Traditional on the way out. The tool then solves for your breakeven retirement rate and shows the outcome across a range of assumptions, so you can see how sensitive the answer is rather than trusting a single guess.

Does the tool assume you invest the tax savings elsewhere?

No. The tool keeps Traditional's tax savings inside the retirement account, compounding tax-deferred, rather than assuming you invest that money in a separate taxable brokerage account. That is the cleanest like-for-like comparison, and it gives Traditional its strongest case. If you would actually take the tax savings from Traditional and invest them in a regular taxable account, that side money faces capital-gains tax along the way, which narrows Traditional's edge. So if you are disciplined about investing the tax break separately, treat the result as Traditional's best case and lean a little more toward Roth than the breakeven alone suggests. Most people spend that freed-up cash rather than invest it, which is why this is the realistic default, but it is worth knowing which way it leans.

What else matters beyond the breakeven rate?

The breakeven rate is the core of the decision, but three other differences matter enough to mention.

Traditional accounts force required minimum distributions, or RMDs. Starting at age 73, the IRS makes you withdraw a set amount each year whether you need it or not, and those withdrawals are taxable. Roth accounts have no RMDs during your lifetime, so the money can keep growing untouched and pass to heirs more cleanly. If leaving a tax-free inheritance or controlling your retirement income matters to you, that pushes toward Roth.

Roth contributions, the money you put in, can be withdrawn at any time without tax or penalty, since you already paid tax on it. Only the earnings are locked until retirement. That makes Roth quietly more flexible than people assume.

And one more difference worth knowing: an employer match has traditionally gone into a pre-tax Traditional account, and in most plans it still does, even if your own contributions are Roth. Some plans now offer Roth matching under newer rules (SECURE 2.0), though it is not yet universal. Either way, many people with a match end up holding both account types, which is its own small form of tax diversification.