Roth vs Traditional IRA Comparison

The Roth vs Traditional IRA decision is one of the most important choices you'll make for your retirement. Both are Individual Retirement Accounts that offer powerful tax advantages, but they work in fundamentally opposite ways: Traditional IRAs give you a tax break now (tax-deferred), while Roth IRAs give you a tax break later (tax-free withdrawals in retirement).

The core question isn't "which is better?"—it's "which is better for you?" The answer depends largely on one factor: your tax rate now versus your expected tax rate in retirement. If you'll be in a lower bracket in retirement, Traditional may win. If you'll be in a higher bracket, Roth typically wins. If they're equal? It's often a wash mathematically—but Roth offers additional flexibility.

This calculator helps you model both scenarios using your own assumptions. Enter your current and expected retirement tax rates, contribution amounts, time horizon, and expected returns. You'll see projected balances for both account types, after-tax values at retirement, and which option may leave you with more spendable money.

Understanding this decision can mean hundreds of thousands of dollars difference over your lifetime. Let's break down how each account works and what drives the comparison.

Traditional IRA: Tax Now, Pay Later

With a Traditional IRA, contributions may be tax-deductible (reducing your taxable income today), and investments grow tax-deferred. You don't pay taxes until you withdraw money in retirement, when withdrawals are taxed as ordinary income.

• Contribution Limit (2025): $7,000 ($8,000 if 50+); verify current limits at irs.gov
• Tax Deduction: May be limited if you have a workplace retirement plan and income exceeds thresholds
• RMDs: Required Minimum Distributions start at age 73
• Early Withdrawal: 10% penalty + taxes before 59½ (with exceptions)

Roth IRA: Tax Now, Tax-Free Later

With a Roth IRA, contributions are made with after-tax dollars (no deduction), but investments grow tax-free, and qualified withdrawals in retirement are completely tax-free—including all the growth.

• Contribution Limit (2025): $7,000 ($8,000 if 50+); verify current limits at irs.gov
• Income Limits: Phase-out begins at $150,000 (single) / $236,000 (married filing jointly) for 2025; verify current limits at irs.gov
• RMDs: None during account holder's lifetime
• Early Withdrawal: Contributions can be withdrawn anytime; earnings may have penalties before 59½

The Tax Rate Comparison

The fundamental trade-off:

• Traditional: Deduct at your tax rate now, pay taxes at your rate in retirement
• Roth: Pay taxes at your rate now, withdraw tax-free in retirement

If your retirement tax rate is lower → Traditional wins (you deduct at high rate, pay at low rate). If your retirement tax rate is higher → Roth wins (you pay at low rate now, avoid high rate later). If rates are equal → Mathematically equivalent, but Roth has flexibility advantages.

Why Roth Has Hidden Advantages

Even when math seems equal, Roth offers benefits: no RMDs (more control over distributions), tax-free inheritance for heirs, ability to withdraw contributions anytime, and protection against future tax rate increases. Many advisors suggest "when in doubt, choose Roth" for younger savers.

Step 1: Enter Your Age Information

Input your current age and planned retirement age. The calculator uses these to determine your contribution period and how long investments have to grow. A longer time horizon generally favors Roth due to more years of tax-free growth.

Step 2: Set Your Annual Contribution

Enter how much you plan to contribute annually. Remember the IRS limits: $7,000 for 2025 ($8,000 if 50+); verify current limits at irs.gov. The calculator assumes consistent contributions but doesn't enforce limits—use realistic amounts based on your eligibility.

Step 3: Input Your Tax Rate Assumptions

This is the critical input. Enter your marginal tax rate now and your expected marginal rate in retirement. These drive the comparison outcome. If unsure, try multiple scenarios (e.g., 22% now / 12% retirement, or 24% now / 32% retirement) to see how results change.

Step 4: Set Expected Return Rate

Enter your expected annual investment return. A 7% long-term average is common for diversified stock portfolios. Lower for conservative investors, higher for aggressive. The calculator uses constant returns (reality is more volatile).

Step 5: Confirm Eligibility Assumptions

Indicate whether you're eligible for Roth contributions (income limits apply) and whether your Traditional contributions would be deductible (depends on workplace plan coverage and income). These affect the comparison validity.

Step 6: Analyze the Results

Review the projected balances, after-tax values, and recommendation. See year-by-year growth, taxes paid/saved, and which account ends up with more spendable retirement money under your assumptions.

Traditional IRA After-Tax Value

For Traditional IRAs, you contribute pre-tax dollars and pay taxes on withdrawal:

Example: $500,000 Traditional IRA at 22% retirement tax rate:
After-Tax = $500,000 × (1 - 0.22) = $500,000 × 0.78 = $390,000 spendable

Roth IRA After-Tax Value

For Roth IRAs, you contribute after-tax dollars and withdraw tax-free:

Example: $450,000 Roth IRA:
After-Tax = $450,000 × 1 = $450,000 spendable

Why Balances Differ

Traditional IRA balances grow larger because you contribute pre-tax dollars (more principal). Roth balances are smaller because contributions are after-tax. The question is whether Traditional's larger balance minus taxes beats Roth's smaller tax-free balance.

The Equal Tax Rate Scenario

When tax rates are identical now and in retirement, the math is equivalent:

Both end up with the same after-tax amount. But Roth has advantages: no RMDs, more flexibility, and protection if future tax rates increase.

Example: Different Tax Rates

$7,000/year for 30 years at 7% return, 24% tax rate now, 15% tax rate in retirement:

• Traditional: $661,000 balance × (1 - 0.15) = $561,850 after-tax
• Roth: $5,320 contribution ($7,000 × 0.76) → $502,160 balance = $502,160 after-tax

Traditional wins by ~$60,000 because you deduct at 24%, pay at 15%. The 9% rate differential, compounded over 30 years, creates significant value.

Scenario 1: Young Professional, Early Career

Situation: Alex, 25, earns $55,000 (22% bracket). Expects income to grow significantly and be in a higher bracket (32%+) by retirement at 65.

Analysis: Roth is clearly better. Pay 22% now instead of 32%+ later. 40 years of tax-free growth on contributions and earnings. No RMDs gives flexibility.

Recommendation: Max out Roth IRA. Consider Roth 401(k) if available. Lock in today's lower tax rate while income is relatively low.

Scenario 2: Peak Earning Years, Near Retirement

Situation: Maria, 55, earns $180,000 (32% bracket). Plans to retire at 67 with moderate spending (22% expected bracket). Over Roth income limits.

Analysis: Traditional IRA is better (if deductible). Deduct at 32%, pay at 22% later. Can use backdoor Roth IRA strategy if non-deductible Traditional doesn't make sense.

Recommendation: Maximize Traditional IRA deduction if eligible. Consider Roth conversions in early retirement when income drops.

Scenario 3: Uncertain Future Tax Rates

Situation: Jordan, 35, earns $85,000 (22% bracket). Unsure about future income and tax rates. Wants flexibility and simplicity.

Analysis: When uncertain, Roth provides protection. If future rates rise (possible given national debt), Roth protects against tax increases. No RMDs means more control in retirement.

Recommendation: Default to Roth when tax rates might be similar or uncertain. The flexibility and protection are worth potential slight cost.

Scenario 4: High Earner Doing Backdoor Roth

Situation: Chris, 40, earns $250,000 (35% bracket). Over Roth income limits. Already maxes 401(k). Wants additional tax-advantaged savings.

Analysis: Direct Roth contributions aren't allowed. Non-deductible Traditional IRA offers no tax benefit. Backdoor Roth IRA converts non-deductible contributions to Roth (legal, IRS-approved strategy).

Recommendation: Execute backdoor Roth IRA: contribute $7,000 non-deductible to Traditional, convert to Roth. Pay minimal taxes on conversion, then tax-free forever.

Scenario 5: Early Retirement / FIRE

Situation: Sam, 32, earns $120,000 (24% bracket). Plans to retire at 45 with $50,000/year spending (12% bracket effectively).

Analysis: Complex situation. Traditional deduction at 24% is valuable, but Roth provides pre-59½ access to contributions without penalty. Consider splitting.

Recommendation: Split contributions: Roth for flexibility before 59½, Traditional for tax optimization. Plan Roth conversion ladder in early retirement to access Traditional funds tax-efficiently.

• ❌ Assuming Traditional is always better because of the "tax deduction":The deduction is only valuable if you pay lower taxes later. High earners in their 30s who expect similar or higher retirement income often do better with Roth despite giving up the current deduction.
• ❌ Ignoring income limits: If your income exceeds Roth IRA limits, you can't contribute directly. But you can do a backdoor Roth. Don't skip Roth just because you think you're "not eligible"—research the backdoor strategy.
• ❌ Forgetting about RMDs: Traditional IRAs require withdrawals starting at 73, which can push you into higher tax brackets. Roth has no RMDs, giving you more control. This is often undervalued in simple calculators.
• ❌ Not considering state taxes: If you live in a high-tax state now but plan to retire in a no-income-tax state (Florida, Texas, etc.), that changes the comparison significantly in favor of Traditional.
• ❌ Comparing pre-tax to after-tax dollars incorrectly: A $500,000 Traditional IRA is not worth $500,000—it's worth $500,000 minus future taxes. A $400,000 Roth IRA might actually be worth more. Always compare after-tax values.
• ❌ Contributing to Traditional without checking deductibility: If you have a workplace retirement plan and income above thresholds, Traditional IRA contributions may not be deductible. Non-deductible Traditional offers the worst of both worlds—do backdoor Roth instead.
• ❌ Only using one type: Tax diversification matters. Having both Traditional and Roth assets gives you flexibility to manage taxes in retirement. Don't put everything in one basket.

1. Backdoor Roth IRA for High Earners

Over the Roth income limits? Contribute $7,000 (verify current limits at irs.gov) to a non-deductible Traditional IRA, then immediately convert to Roth. You pay taxes only on any gains between contribution and conversion (minimal if done quickly). Legal, IRS-approved, and widely used.

2. Roth Conversion Ladder for Early Retirement

Planning to retire before 59½? Convert Traditional to Roth in small chunks during low-income early retirement years. Converted amounts become penalty-free after 5 years. This lets you access retirement funds early while paying minimal taxes during conversion.

3. Tax Bracket Optimization

In retirement, strategically withdraw from Traditional up to the top of your current bracket, then use Roth for additional needs. This "fills up" low brackets with taxable Traditional withdrawals while preserving tax-free Roth growth.

4. Mega Backdoor Roth (If Available)

Some 401(k) plans allow after-tax contributions beyond the $23,000 limit, up to $69,000 total. These can be converted to Roth. This is the most powerful Roth accumulation strategy available—check if your plan offers it.

5. Consider Roth for Inheritance Planning

Heirs of Roth IRAs receive tax-free distributions (though must empty within 10 years). Heirs of Traditional IRAs pay income tax on distributions. If leaving wealth to heirs is a goal, Roth may be more valuable even if the math is close.

6. Tax Diversification Across Accounts

Build a mix of Traditional (pre-tax), Roth (tax-free), and taxable accounts. This gives flexibility to manage taxes in retirement regardless of future tax law changes. Don't go 100% into either Traditional or Roth.

7. Roth Contributions During Low-Income Years

Years with unusually low income (career break, grad school, startup, sabbatical) are prime Roth contribution years. You're paying taxes at a low rate that may never be this low again. Max out Roth contributions during these windows.