How this calculator works
The Roth-versus-Traditional question gets answered badly all the time, because the obvious comparison is rigged. Put the same $7,000 in each, and the Roth always "wins" — but that ignores the fact that a Traditional contribution is deductible, so it costs you less out of pocket. The fair comparison invests that tax deduction's savings alongside the Traditional account. Do that, and a clean rule emerges: the winner is decided almost entirely by your tax rate today versus your tax rate in retirement.
This tool computes the after-tax retirement value of both paths. The Roth grows and is withdrawn tax-free. The Traditional grows, is taxed on withdrawal, and gets a second bucket — the deduction's tax savings, invested in a taxable account and taxed on its gains. It then solves for the break-even retirement tax rate: the rate at which the two strategies tie, so you can see exactly which side of the line your situation falls on.
The method
Contributions are modelled as a level annual amount compounding to retirement. The Traditional tax savings equals your contribution times your current rate, invested each year.
- Roth: grows to about
$661,000, all of it yours tax-free. - Traditional account: same
$661,000, but~$516,000after 22% tax on withdrawal. - Plus the invested deduction: the tax savings grow to about
$142,000after capital-gains tax, for a Traditional total near$658,000. - Roth wins by ~$3,000 — barely — because the break-even retirement rate is about
21.5%, just under your assumed 22%.
Acronyms used on this page
- RMD
- Required Minimum Distribution
- IRA
- Individual Retirement Account
Beyond the math
The dollar comparison is the core, but three things tilt real decisions. First, uncertainty: nobody knows future tax rates or laws, so splitting contributions between both buckets buys tax diversification and flexibility in retirement. Second, Roth IRAs have no required minimum distributions, while Traditional accounts force withdrawals starting in your 70s — valuable for estate planning and for controlling taxable income later. Third, the contribution limit favours Roth in disguise: $7,000 of after-tax Roth money shelters more real wealth than $7,000 of pre-tax Traditional money, since the Roth has no future tax bill attached. For most people the honest answer is "some of both," weighted by where they expect their tax rate to go.
Frequently asked questions
Is a Roth or Traditional IRA better?
Mostly it depends on your tax rate now vs in retirement. Roth wins if you expect a higher rate later; Traditional wins if you expect a lower one. At equal rates they're close, with Roth slightly ahead from tax-free growth.
What's the difference?
Traditional: deduct now, pay tax on withdrawals. Roth: no deduction, but withdrawals are tax-free. Roth IRAs also have no required minimum distributions; Traditional IRAs do.
What about high earners?
Peak-bracket earners often favour Traditional for the big deduction now. But Roth adds diversification and skips RMDs. Note Roth IRA contributions phase out at high incomes — a Roth 401k or backdoor Roth has no income limit.
Can I do both?
Yes, and many should — split contributions to hedge unknown future tax rates. Just keep total IRA contributions within the annual limit across both.