Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The comparison between a traditional and a Roth account ultimately comes down to a bet on future tax rates relative to current ones, and both the funding assumption, whether the same pre-tax dollar amount goes into each, and the future tax-rate assumption drive the modeled result more than any other single input.
Before you rely on it
What to check
Test the comparison under a few different future-tax-rate assumptions rather than anchoring the whole decision on a single guess about future rates.
The common error
Where people go wrong with traditional vs. roth IRA calculator
Treating the modeled comparison's result as certain rather than as sensitive to an assumption about future tax rates that nobody can know for certain. A different reasonable assumption can flip which account structure comes out ahead.
Sensitivity evidence
How annual return changes the roth after-tax advantage
| Annual return | Roth after-tax advantage | Traditional after-tax value |
|---|---|---|
| 5.0% | $71,820 | $260,590 |
| 6.0% | $82,811 | $299,560 |
| 7.0%worked example | $95,724 | $345,340 |
| 8.0% | $110,903 | $399,158 |
| 9.0% | $128,759 | $462,467 |
Every input, tested
Which input moves the roth after-tax advantage most
| Input | Tested from | To | Roth after-tax advantage at each end | Swing |
|---|---|---|---|---|
| Years invested | 19.0 years | 31.0 years | $55,884 to $155,512 | $99,629 (104%) |
| Annual return | 6.0% | 8.0% | $82,811 to $110,903 | $28,092 (29%) |
| Annual contribution | $6,300 | $7,700 | $86,151 to $105,296 | $19,145 (20%) |
| Future withdrawal tax rate | 20.0% | 24.0% | $86,869 to $104,578 | $17,710 (19%) |
| Current marginal tax rate | 22.0% | 26.0% | $95,864 to $95,584 | $280 (0.3%) |
Two variables at once
Roth after-tax advantage by annual return and annual contribution
| Annual return \ Annual contribution | $5,600 | $7,000 | $8,400 |
|---|---|---|---|
| 5.0% | $57,456 | $71,820 | $86,184 |
| 6.0% | $66,249 | $82,811 | $99,374 |
| 7.0% | $76,579 | $95,724 | $114,868 |
| 8.0% | $88,723 | $110,903 | $133,084 |
| 9.0% | $103,008 | $128,759 | $154,511 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Annual contribution | $7,000 |
| Years invested | 25.0 years |
| Annual return | 7.0% |
| Current marginal tax rate | 24.0% |
| Future withdrawal tax rate | 22.0% |
| Roth after-tax advantage | $95,724 |
| Traditional after-tax value | $345,340 |
Where the inputs come from
Annual contribution is what you put in each year, years invested and annual return describe growth, and the two tax rates are the crux: the current marginal rate is the tax you save with a traditional deduction, and the future withdrawal rate is your expected rate on withdrawals in retirement. Estimate the future rate from your expected retirement income and current brackets, not from your salary today. Both accounts are assumed to receive the same pre-tax contribution.
Using the roth after-tax advantage in a real decision
Many people split contributions between the two to hedge tax uncertainty.
When the result stops applying
The comparison assumes you invest the traditional deduction's tax savings, which many people spend instead, and that contributions are the same amount. Roth eligibility phases out at higher incomes, and required distributions, state taxes and changing tax law can alter the result. Roth accounts also give tax-free heirs and no lifetime RMDs, benefits not in the numbers.
What to compare it with
Use the Roth IRA contribution and traditional IRA deduction calculators for each account separately, and the Roth conversion page for moving money. The retirement income tax calculator estimates the rate you may pay in retirement, and the IRA growth page projects the balance.
People also ask
Frequently asked questions
Is Roth or traditional better for me?
If you expect a higher tax rate in retirement than now, the Roth is usually better. If you expect a lower rate, the traditional wins. When unsure, splitting is reasonable.
Can I contribute to both?
Yes, but the annual IRA limit applies to the combined total across all your traditional and Roth IRAs.
What if I am not sure about future tax rates?
Tax diversification helps: holding both pre-tax and Roth money lets you choose which to draw from each year to manage your bracket.