Tools Roth vs Traditional Calculator

Free tool · Roth vs Traditional Calculator

Should I choose Roth or traditional for my 401(k) or IRA?

A traditional account cuts your taxes now and taxes withdrawals later. A Roth taxes you now and lets you withdraw tax-free. Compare the two at the same out-of-pocket cost and see which leaves you more to spend in retirement.

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Step 1 · Your contribution

The pre-tax amount you’d put into a traditional 401(k) or IRA each year.

Step 2 · Your tax rates

Your marginal rate: federal bracket plus state income tax, e.g. 22% + 5% = 27%.
The rate you expect to pay on withdrawals, federal plus state. Moving to a no-tax state lowers it.
Leave blank for 5% a year, a common long-run planning figure for a stock-heavy mix. It doesn’t change which account wins.

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How this calculator works

The fair way to compare the two is at the same cost to you today. Say you can afford to give up $7,300 of take-home pay a year and your tax rate is 27%. That buys a $10,000 traditional contribution, because the deduction gives back $2,700 in tax, or a $7,300 Roth contribution, because Roth money has already been taxed. Both leave your paycheck $7,300 lighter.

Roth after tax = growth of (contribution × (1 − tax rate today))
Traditional after tax = growth of contribution × (1 − tax rate in retirement)

Both accounts grow at the same return for the same years, so the only difference is when the tax is paid. That makes the break-even retirement tax rate equal to your tax rate today: if you expect to pay more in retirement, the Roth wins; if less, traditional wins; if the same, they tie to the dollar. The return and the number of years change how big the balances get, but not which one is bigger. When the two rates are within 2 percentage points we call it a close call, because nobody can forecast their tax rate decades out that precisely.

Growth compounds monthly at your expected return after inflation, so every figure is in today’s dollars. Things this simple model leaves out:

  • Contribution limits. If you already contribute the maximum, a Roth dollar holds more after-tax value than a traditional dollar, which tilts things toward Roth. Current limits and income rules are on the IRS’s Roth comparison chart and Traditional and Roth IRAs pages.
  • Average vs. marginal rates. Retirement withdrawals partly fill the lower brackets, so the average rate on them is often below your top bracket. Use the rate you expect on the money you’ll actually withdraw.
  • Other rules. Required minimum distributions on traditional accounts, IRA deduction and Roth income limits, and early-withdrawal rules all matter for real plans.

Words you’ll see

Traditional 401(k) or IRA
A pre-tax account: contributions can lower this year’s taxable income, and withdrawals in retirement are taxed as income.
Roth 401(k) or IRA
An after-tax account: contributions don’t lower this year’s taxes, but qualified withdrawals, growth included, are tax-free.
Marginal tax rate
The rate on your next dollar of income: your top federal bracket plus state income tax. It’s the rate a traditional contribution saves you.
Break-even tax rate
The retirement tax rate at which Roth and traditional leave you the same amount. Under an equal out-of-pocket comparison it equals your tax rate today.
Real return
Investment growth after subtracting inflation. Using it keeps every number in today’s dollars.

Common questions

Is Roth or traditional better?

Neither is better for everyone. A Roth comes out ahead if your tax rate in retirement will be higher than it is today, and a traditional account comes out ahead if it will be lower. If the two rates are the same, they leave you the same amount to spend.

What tax rate makes Roth better than traditional?

A Roth beats a traditional account when your tax rate in retirement is higher than your marginal tax rate today. If you pay 22% now, the Roth wins if you expect to pay more than 22% on withdrawals, and traditional wins if you expect less. At exactly the same rate, they tie.

Can I contribute to both a Roth and a traditional 401(k)?

Yes. If your plan offers both, you can split your contributions between them, but the yearly employee contribution limit applies to the combined total, not to each one. Roth and traditional IRAs work the same way and share one yearly limit.

Do Roth contributions reduce my taxes now?

No. Roth contributions are made with money that has already been taxed, so they don't lower this year's tax bill. Traditional 401(k) contributions, and deductible traditional IRA contributions, do lower it; the trade-off is that qualified Roth withdrawals in retirement are tax-free.

Should young people choose Roth?

Often, yes. Early in a career, income and tax rates are usually at their lowest, so paying tax now at a low rate and withdrawing tax-free later tends to win. If you're already in a high tax bracket, traditional may still be the better deal.

Sources

  1. Roth Comparison Chart — Internal Revenue Service
  2. Traditional and Roth IRAs — Internal Revenue Service

This tool is for informational and educational purposes only. It is not financial, tax, or legal advice. Consult a qualified professional for guidance specific to your situation.