Roth vs Traditional Calculator

The arithmetic is symmetric, which surprises people

If your tax rate is identical now and later, and you invest the traditional tax saving, the two routes produce exactly the same after-tax amount. Multiplication commutes: taxing before growth or after growth gives the same answer at the same rate. Everything that makes one better than the other comes from the rates differing, not from the accounts themselves.

The equal-cost trap

Contributing $7,000 to a Roth costs $7,000 of after-tax money. Contributing $7,000 to a traditional account at a 24 per cent rate costs only $5,320, because $1,680 comes back as a tax deduction. Comparing them without investing that $1,680 compares a larger contribution against a smaller one and calls the difference a Roth advantage. The option above lets you see both framings; the equal-cost one is the honest comparison.

What the break-even rate tells you

The break-even line is the retirement tax rate at which both routes tie. If you expect to be below it, traditional wins; above it, Roth wins. Since nobody knows future tax law, many people deliberately hold some of each — which is a hedge, not an optimisation, and a perfectly reasonable answer to genuine uncertainty.

Three rules that can outweigh the tax-rate comparison

Traditional balances are subject to required minimum distributions in retirement, which force taxable income out of the account on a schedule regardless of whether you need the money. A Roth IRA has no RMD during the original owner's lifetime, which makes it the more flexible vehicle for anyone who expects to leave the balance untouched for a while. That flexibility has value that the break-even tax rate above does not capture.

Roth withdrawals are also conditional rather than automatic. Earnings come out tax-free only once the account has satisfied a five-year holding requirement and a qualifying condition such as age 59 and a half, and direct Roth IRA contributions carry income limits that phase the option out at higher incomes. Finally, the comparison is a state-level question as well as a federal one: a traditional deduction taken in a high-tax state and withdrawn in a state with no income tax changes the answer, and so does the reverse.

Frequently Asked Questions