Roth vs Traditional IRA Calculator

When Traditional Wins, When Roth Wins

The Roth vs Traditional IRA decision is entirely a tax-timing question. Both accounts grow tax-deferred inside the account; what differs is when you pay income tax — on the dollars going in (Roth) or on the dollars coming out (Traditional).

The core rule in Mode A (equal out-of-pocket cost)

When you compare the two accounts on equal out-of-pocket terms — meaning the same real after-tax dollars leave your pocket either way — the math simplifies to a single question: is your marginal tax rate higher now or in retirement?

• Rate now < rate in retirement: Roth wins. You pay tax at the lower current rate. Every dollar of growth is eventually tax-free, which is more valuable if retirement withdrawals would be taxed at a higher rate.
• Rate now > rate in retirement: Traditional wins. The pre-tax deduction lets more dollars compound now; you pay the lower retirement rate later on withdrawals.
• Rate now = rate in retirement: Exact mathematical tie. The return rate, years, and contribution amount do not affect this tie — they cancel out perfectly.

What shifts the rates?

Several real-world forces can make your retirement rate higher or lower than you expect:

• Required Minimum Distributions (RMDs): Traditional IRA holders must begin withdrawals at age 73. Large balances can push retirees into higher brackets than they planned for. Roth IRAs have no RMDs during the owner's lifetime, giving more control over taxable income.
• State tax changes: If you live in a high-tax state now and plan to retire in a no-income-tax state (like Florida, Texas, or Nevada), your effective rate drops at retirement, favoring the Traditional. The reverse is also true.
• Social Security taxation: Up to 85% of Social Security benefits can be taxable if your combined income is high. Large Traditional IRA withdrawals can trigger or increase this, effectively raising your retirement marginal rate.
• Early access rules: Roth contributions (not earnings) can be withdrawn penalty-free at any age. Traditional IRA withdrawals before age 59½ are subject to a 10% penalty plus income tax (with some exceptions). This liquidity difference may favor Roth for younger savers who may need flexibility.
• Effective shelter size: A $7,000 Roth contribution is $7,000 of after-tax money sheltered. A $7,000 Traditional contribution shelters $7,000 pre-tax but the take-home value is less once retirement taxes are due. At the same contribution limit, the Roth shelters more after-tax wealth — a meaningful difference for high earners who are already maxing out.

Mode B adds another dimension

When you contribute the same dollar amount to each account, the Traditional IRA generates an annual tax refund (your contribution times your current tax rate). If you diligently invest that refund in a taxable account, the total Traditional strategy often wins — but capital-gains tax on the side account's growth erodes the advantage. The higher the return and the longer the horizon, the more the side account grows, and the more capital-gains tax it attracts. At high capital-gains rates or short horizons, Roth can reclaim the lead even at favorable traditional-rate spreads.

This tool is an educational calculator, not financial or tax advice. Tax laws change frequently. Consult a qualified tax professional for guidance specific to your situation.

How the Calculator Works

Future value formula

The calculator projects account growth using an ordinary annuity future-value formula (contributions made at end of each year):

Where pmt is the annual contribution, r is the annual return rate (as a decimal), and n is the number of years until retirement. When r = 0, the formula simplifies to pmt × n (pure contribution sum) to avoid division by zero.

Mode A — Equal out-of-pocket cost

You commit C dollars of after-tax money per year. The two accounts use that money differently:

The Traditional grossing-up reflects the deduction: if your marginal rate is 22%, a $7,000 after-tax commitment implies a $8,974 pre-tax IRA contribution (the $1,974 tax savings is returned to you via a lower tax bill). The gross amount grows over n years, then is taxed at your retirement rate on withdrawal.

Mode B — Equal contribution plus side account

C dollars go into each account. The Traditional generates an annual tax refund of C × tₙₒᴱ which is invested in a taxable account:

The side account is taxed on capital gains (FV minus cost basis) at the capital-gains rate, reflecting a buy-and-hold strategy where gains are realized once at retirement.

Worked example (default inputs)

Using the defaults: $7,000/yr contribution, age 30 to 65 (35 years), 7% return, 22% current rate, 12% retirement rate.

Mode A:

• Roth: FV($7,000, 7%, 35) = $967,658
• Traditional pre-tax: $7,000 ÷ (1 − 0.22) = $8,974/yr; FV × 0.88 = $1,091,717
• Traditional wins by $124,059 (because 22% now > 12% in retirement)
• The $8,974 pre-tax contribution exceeds the $7,000 limit — the informational note appears

Mode B:

• Roth: $967,658
• Traditional IRA after-tax: $967,658 × 0.88 = $851,539
• Side account: FV($1,540/yr, 7%, 35) = $212,885; basis = $53,900; gains = $158,985; tax = $23,848; net = $189,037
• Traditional total: $851,539 + $189,037 = $1,040,576
• Traditional wins by $72,918

Equal-rates tie (mathematical proof)

When tₙₒᴱ = tᴿᵉᵗ = t, Mode A gives:

The (1−t) factors cancel exactly. At equal rates, the two accounts always produce identical after-tax results regardless of return, years, or contribution amount.