Roth vs. traditional

How this calculator works

With a traditional account, your contributions skip income tax today and your withdrawals are taxed in retirement. With a Roth account, you pay tax on the money first, and qualified withdrawals, including all the growth, are tax-free. If your tax rate is the same now and in retirement, both come out exactly equal. Traditional wins if your rate will be lower in retirement, and Roth wins if it will be higher. Roth accounts also have no required minimum distributions, while traditional accounts do.

A worked example

The example sets aside $7,000 of before-tax income each year for 25 years at a 7% return. The tax rate is 22% now and an expected 15% in retirement.

In a traditional account the full $7,000 is invested each year. It grows to about $442,700, and after 15% tax on withdrawals you keep about $376,332. In a Roth, 22% tax comes out first, so $5,460 is invested each year. It grows to about $345,340, all of it tax-free. Traditional comes out ahead by about $30,992.

Change the retirement rate to 22% and the two are exactly equal. Change it to 30% and the Roth wins by about $35,419.

How to read your results

The "Break-even retirement tax rate" row is always equal to your tax rate today. That is the whole decision in one line: if you expect to be taxed at a lower rate in retirement, traditional leaves more, and if you expect a higher rate, Roth leaves more.

The comparison uses the same before-tax budget on both sides, which is the fair way to compare. If you would put the same dollar amount into either account, the Roth shelters more, because every dollar in it is already yours.

Common mistakes to avoid

• Comparing the wrong rates. Contributions come off the top of your income, at your marginal rate. Withdrawals in retirement fill the low brackets first, so the average rate on them is often lower than people expect.
• Forgetting the employer match. Matching contributions are worth capturing in either type of account before anything else.
• Treating it as all or nothing. Many people split contributions between the two, which spreads the risk of guessing future tax rates wrong.
• Overlooking required withdrawals. Traditional accounts have required minimum distributions starting at 73 or 75. Roth IRAs do not during the owner's lifetime, and since 2024 neither do Roth 401(k)s.