Roth IRA Calculator
Compare a Roth IRA against a traditional IRA on after-tax terms, showing which comes out ahead and exactly why.
How to use this calculator
- 1Enter your age, contribution and expected return.
- 2Set your marginal tax rate today and what you expect it to be in retirement — this pair decides the answer.
- 3Leave "invest the tax saving" on. Turning it off shows how misleading the usual comparison is.
How the calculation works
Roth net = FV(after-tax contributions)
Traditional net = FV(pre-tax contributions) × (1 − t_retirement) + FV(tax saving invested)- FV
- Future value at the expected return
- t_now
- Your marginal tax rate today
- t_retirement
- Your expected marginal rate in retirement
With equal tax rates now and later, the two accounts are mathematically identical — multiplication is commutative, so it makes no difference whether you subtract tax before or after growth.
The entire advantage of one over the other comes from the *difference* between your two tax rates. Everything else is noise.
A fair comparison must invest the traditional account’s tax saving. Omitting it is the most common flaw in published comparisons, and it always favours the Roth.
Worked example
$7,000 a year for 30 years, 24% now, 22% in retirement
- 1.Both accounts grow to the same pre-tax balance: $7,000 a year at 7% for 30 years ≈ $661,000.
- 2.The Roth is withdrawn tax-free, so its net value is the full $661,000.
- 3.The traditional is taxed at 22% on withdrawal, leaving about $516,000.
- 4.But the traditional saved $1,680 in tax each year; invested, that side account adds roughly $137,000 after tax.
- 5.Traditional total ≈ $653,000 — so the Roth leads by only about $8,000, because the two tax rates are close.
Result: Roth ahead by roughly $8,000 — a small margin driven entirely by the 2-point rate difference
What a Roth IRA is
A Roth IRA is an individual retirement account — opened and funded by an individual directly with a brokerage, rather than through an employer — into which contributions are made with money that has already been taxed. Unlike a 401(k), nothing about it depends on where you work: eligibility and contribution room follow you between jobs, and you choose the brokerage and the investments yourself from an essentially open menu.
"Individual" is the operative word twice over: the account is opened individually rather than provided by an employer, and the tax treatment applies individually to whatever is inside it, regardless of what other retirement accounts you also hold.
How the tax treatment differs from a traditional account
A traditional IRA or 401(k) defers tax: contributions reduce taxable income now, and the entire balance — contributions and growth alike — is taxed as ordinary income when withdrawn. A Roth IRA reverses the order: contributions bring no tax deduction today, but growth inside the account and qualifying withdrawals in retirement are both entirely free of tax. Which one leaves more money in your pocket depends on whether your tax rate is higher today or in retirement — the calculation above compares the two directly, including the often-overlooked step of investing what a traditional account saves in tax today.
Rules that are unique to the Roth
A few features distinguish a Roth IRA from both a traditional IRA and a workplace 401(k), and are worth understanding before relying on one.
- Income limits — eligibility to contribute directly phases out above a certain income level, unlike a 401(k), which has no income restriction on who can contribute.
- The five-year rule — tax-free withdrawal of investment earnings generally requires the account to have been open for a minimum number of years, in addition to reaching retirement age — a condition that does not apply in the same way to a traditional account.
- Contributions can be withdrawn penalty-free — because contributions were already taxed, the amount you put in — though not the growth on it — can typically be withdrawn at any time without tax or penalty, a flexibility a traditional account and most 401(k)s do not offer.
- No required minimum distributions — a Roth IRA is not subject to forced withdrawals during the original owner’s lifetime, unlike a traditional IRA or 401(k), which allows the balance to keep growing tax-free for as long as it is left alone.
Who tends to benefit most
The Roth generally favours people who expect their tax rate to be higher in retirement than it is today — often earlier-career savers on lower current incomes with room to grow, or anyone who simply values the certainty of a tax-free bucket alongside taxable and tax-deferred savings. Holding a mix of account types, rather than committing everything to one, gives more control over taxable income in retirement, since withdrawals can be drawn from whichever bucket suits that year’s tax situation.
Opening and funding one
The mechanics of starting a Roth IRA are simple, even if the underlying tax decision is not.
- 1Check eligibility — confirm your income falls under the current contribution phase-out range for your filing status.
- 2Choose a brokerage — any major brokerage can open one; low costs and a broad investment selection are the main things to compare.
- 3Set a contribution schedule — automating regular contributions, rather than a single lump sum, spreads purchases across market conditions over the year.
- 4Choose investments — unlike a 401(k), the account itself holds no investments by default — you select funds or securities within it.
- 5Consider a backdoor conversion if over the income limit — contributing to a traditional IRA and converting it to a Roth is a route some higher earners use, though it carries its own tax rules worth understanding first.
Where the name comes from
The Roth IRA was created by the Taxpayer Relief Act of 1997 and named after Senator William Roth of Delaware, who championed it. It arrived two decades after the traditional IRA, as a deliberate alternative structure — tax paid up front instead of deferred — rather than a replacement for it, and both have coexisted as parallel options ever since.
What this assumes, and where it stops
Assumptions
- Returns are identical in both accounts.
- The whole traditional balance is taxed as ordinary income at your stated retirement rate.
- The invested tax saving sits in a taxable account, with tax on its gains only.
- Contribution limits stay flat; in reality they are indexed and will rise.
Limitations
- Roth IRA income limits and traditional IRA deduction phase-outs are not modelled and may make one option unavailable to you.
- Required minimum distributions apply to traditional IRAs from age 73 but not to Roth IRAs — a genuine advantage not captured in these totals.
- Retirement tax rates depend on future legislation and your future income. This is the least knowable input, and it drives the entire result.
- State taxes, estate planning and the flexibility to withdraw Roth contributions penalty-free are all excluded.
Common questions
Roth or traditional — which is actually better?
Whichever leaves you paying tax at the lower rate. If you expect a higher tax rate in retirement than today, the Roth wins because you pay tax now while rates are low. If you expect a lower rate, the traditional wins. At equal rates they are mathematically identical, and the choice comes down to flexibility, required distributions and estate planning instead.
Why do most Roth calculators favour the Roth so heavily?
Because they compare equal contributions without investing the traditional account’s tax saving. Putting $7,000 into a Roth costs you $7,000 of after-tax money; putting $7,000 into a traditional costs only about $5,320 after the deduction. Ignoring that difference means comparing unequal amounts, which always flatters the Roth.
What if I cannot predict my retirement tax rate?
Almost nobody can, which is a strong argument for holding both. Splitting contributions gives you tax diversification and the ability to manage withdrawals across brackets in retirement — often worth more than trying to guess correctly three decades ahead.
Sources
- IRS Notice 2024-80 — IRA contribution limits — US Internal Revenue Service
- Roth IRAs — US Internal Revenue Service
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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