Saving & investing

Roth vs Traditional Calculator

Q: Is Roth or Traditional better?

It comes down to your tax rate now versus in retirement. Roth uses after-tax money and grows tax-free, so it wins if you expect to be taxed more later. Traditional gives you the tax break now and is taxed on the way out, so it wins if you expect a lower rate in retirement. If the rates are the same, they end up roughly equal.

Built and maintained by Chandranshu Kumar · Figures from the IRS, SSA, BLS and Freddie Mac

Set aside the same after-tax money either way and the winner depends on tax rates. With equal rates now and later, a Roth ends near $606,438 and a Traditional near $606,438, which is about the same. Change either rate below and the gap opens up. The honest way to compare is in after-tax dollars, since a Traditional balance still owes tax and a Roth does not. That is what this does.

After-Tax Value

Roth

is roughly even here

You set aside each year

Years until retirement

Your tax rate now

22%

Tax rate in retirement

22%

Roth, after tax$606,438

Traditional, after tax$606,438

Difference$0

It is a bet on your future tax rate

Both accounts let your money grow without yearly taxes. The only real difference is when you pay: a Roth taxes the money going in, a Traditional taxes it coming out. So the whole decision is a guess about whether your tax rate will be higher or lower in retirement. Early in your career, when your rate is often low, a Roth is a common pick. Later, in your peak earning years, the upfront tax break of a Traditional can be worth more. Many people hold both, which also gives them flexibility later. When today's rate and your future rate are equal, the math says it barely matters.

Compares equal after-tax cost at a steady 7% return. Contribution limits and eligibility rules apply. Not financial advice.

How the two accounts are compared

The comparison holds the after-tax cost equal, which is the honest way to line them up. You set aside $6,000 of already-taxed money into a Roth. A Traditional lets you deduct the contribution, so the same take-home cost buys a larger pre-tax deposit. Both then grow at an assumed 7% for 30 years.

At the end the Roth is yours tax-free, landing near $606,438. The Traditional balance still owes income tax on the way out, so its after-tax value is near $606,438. With today's rate and the retirement rate both set to 22%, the two land on essentially the same after-tax value, a difference of just $0.

Change either tax rate and the gap opens. A Roth pulls ahead when your rate in retirement is higher than today, and a Traditional wins when it is lower. The 7% return is an assumption, and contribution limits and eligibility rules apply. See the full method for the details.

Common questions

Is Roth or Traditional better?

It depends on your tax rate now versus in retirement. Roth wins if you expect to be taxed more later, Traditional wins if you expect less. Equal rates end up about the same.

Why compare in after-tax dollars?

Because a Traditional balance is not all yours. It still owes income tax when you withdraw, while a Roth balance does not. Comparing the raw balances would flatter the Traditional account, so this tool taxes the Traditional side at your retirement rate before lining the two up.

Can I use both?

Many people do, and holding some of each gives you flexibility to manage your taxable income in retirement. Splitting contributions also hedges the guess about where tax rates will sit years from now.