Retirement
Roth vs. Traditional
Compare a Roth and a traditional account at the same take-home cost, and see how much your tax rate now versus later decides the winner.
What this means
With 22% today and 12% in retirement, the traditional account comes out about $49,647 ahead. Taking the tax break now wins when you expect a lower rate later.
It comes down to your tax rate now versus later. Nobody knows their future rate, so many people hedge: some money in each, so they have a choice of which to draw from when the time comes. This is an estimate, not tax advice.
Build on it
These are estimates to help you think, not personalized legal, tax, or investment advice, and not a promise of any result.
This calculator compares putting the same yearly amount into a Roth account against a traditional one. Enter the amount, your tax rate today, the rate you expect in retirement, the years until you retire and an assumed return, and it shows what each is worth after tax and which comes out ahead.
Why it matters: the choice comes down to one question, whether you'd rather pay the tax now or later. A traditional account gives you the tax break today and taxes the money when it comes out. A Roth taxes it today and lets it come out tax-free. Which one wins depends on whether your tax rate later is higher or lower than it is now.
How to use it
Enter the yearly amount
The same dollar amount goes into either account. A traditional contribution shrinks your take-home pay by less than a Roth contribution does, because it comes out before tax.
Enter your two tax rates
Today's rate is your top federal rate plus any state income tax. The retirement rate is a guess. Try a few: lower, the same, and higher than today.
Decide what happens to the tax saved
Investing the tax a traditional account saves you keeps the comparison fair, because both choices then cost you the same out of pocket. Spending it hands the Roth a head start.
Behind the numbers
Same money, same growth, different tax timing
Both accounts grow the same dollars at the same return. The only difference is when the tax is paid. If the rate when you pay is the same either way, the two land close together.
Why your retirement tax rate is a guess
It depends on your retirement income, where you live, and tax law decades from now. Many people's income drops in retirement, but pensions, required withdrawals and Social Security can keep it higher than expected.
Splitting is a real answer
Because nobody knows their future rate, many people put some money in each. In retirement that gives you a choice of which bucket to draw from in a given year.
The math behind it
The Roth balance is your yearly amount grown at your return, with no tax on the way out. The traditional balance is the same amount grown the same way, minus tax at your retirement rate, plus whatever the tax saved each year grew to in a taxable account, minus tax on that account's gain.
Worked example
Say $1,000 grows to $4,000 either way. In a Roth, you keep $4,000. Say your rate is 22% now and 12% later. In a traditional account, the $4,000 is taxed at 12% and you keep $3,520; the $220 you saved in tax today, invested, grows to $880, and after 12% tax on its $660 gain you keep about $801. That's about $4,321, so traditional wins. Make both rates 22% and traditional comes to about $3,855, so the Roth wins.
Compare the two rates
Expect a lower tax rate in retirement? Traditional tends to win. Expect a higher one? Roth tends to win. Not sure? Split your contributions between the two.
Common questions
Is a Roth always better for young workers?
Not always, but often. Early in a career your income, and so your tax rate, is usually lower than it will be later, which favors paying the tax now. The calculator lets you test your own rates.
Can I have both a Roth and a traditional account?
Yes. Many 401(k) plans offer both, and you can split your contributions. IRA contributions share one yearly limit across traditional and Roth.
Are there income limits?
Roth IRA contributions phase out at higher incomes, and traditional IRA deductions can be limited if you're covered by a workplace plan. Roth 401(k) contributions have no income limit. Check the current year's figures on irs.gov.
Why does the Roth edge ahead when the two rates are equal?
When you invest the tax saved by a traditional account, that money sits in an ordinary taxable account, and its growth is taxed. Every Roth dollar is sheltered. So at equal rates the Roth usually comes out slightly ahead.
Sources & references
Go deeper
The calculator gives you a number. The Retirement Accounts Brick teaches you what to do with it, in plain English. And if you’re not sure where to start, the free BrickScore Assessment checks your whole foundation in about 5 minutes.
first the number, then the move