Roth vs traditional calculator

Why equal tax rates produce a tie

This surprises people, and it is the single most useful thing to understand about the choice. If your tax rate is the same today as it will be when you withdraw, the two accounts produce exactly the same spendable amount.

The reason is that multiplication does not care about order. A Roth contribution is taxed first and then grows; a traditional contribution grows first and is then taxed. Same two operations, same result:

Roth:         (contribution × (1 − tax)) × growth
Traditional:   contribution × growth × (1 − tax)

So the question is never “which account is better”. It is only: will your tax rate be higher now, or later?Pay the tax whenever your rate is lower.

The deduction is the part people miss

A traditional contribution reduces this year’s taxable income, which leaves cash in your pocket today. The comparison above only holds if that money is actually invested.

If it gets spent — which is usually what happens — the traditional side loses a piece of its case, because you contributed the same headline amount while paying less for it, and then consumed the difference. Untick the box above to see the effect.

There is a related point about contribution limits. Limits are stated as a single number regardless of account type, so a maxed-out Roth contribution shelters more real money than a maxed-out traditional one: the Roth dollars have already had tax taken out, while the traditional dollars still owe it.

What this calculator ignores

Quite a lot, deliberately, because the alternative is a tool that looks precise while resting on guesses:

• A single flat tax rate. Real withdrawals are taxed across brackets, so an effective rate in retirement is usually lower than a marginal rate today — which quietly favours traditional more than a flat comparison shows.
• State taxes, which can differ between your working years and your retirement years if you move.
• Required minimum distributions, early withdrawal rules, and the different treatment each account type gets when inherited.
• Future changes to tax law — the largest unknown in any decision that spans decades, and one nobody can model.

The practical version

Early in a career, when income and tax rate are usually at their lowest, paying tax now tends to look attractive. In peak earning years, deferring tends to look better. Many people end up holding both, which hedges the risk of guessing wrong about future rates — and given that nobody knows what those rates will be, that hedge is a defensible position rather than a fence-sit.

Confirm current contribution limits, income phase-outs, and bracket figures at irs.gov before acting. Those numbers change, and this page deliberately does not quote them.