Roth IRAs are funded with after-tax dollars and grow tax-free. Traditional IRAs offer a tax deduction now but withdrawals are taxed in retirement. The better choice depends on whether you expect to be in a higher or lower tax bracket later.
How to use this calculator
- Enter your current income and marginal tax rate.
- Enter your expected tax rate in retirement.
- Enter annual contribution, years until retirement, and expected return.
- Compare after-tax values and read the recommendation.
Formula
Both accounts grow contributions at the expected return. Roth value is fully tax-free at withdrawal. Traditional value is reduced by the expected retirement tax rate. This compares equal contribution amounts to each account type.
Example
Contributing $7,000/year for 25 years at 7% yields about $473,000 in a Roth. The same Traditional balance after a 18% retirement tax rate is worth roughly $388,000 after tax — a Roth advantage of about $85,000 in this scenario.
Frequently asked questions
When is Roth better?
Roth often wins when your current tax rate is lower than your expected retirement rate, or when you want tax-free withdrawals and flexibility in retirement.
When is Traditional better?
Traditional often wins when you are in a high tax bracket now and expect a lower rate in retirement, since the upfront deduction saves more taxes today.