Roth vs. Traditional IRA Calculator

Understanding the Roth vs. Traditional IRA Calculator

Choosing between a Roth and a Traditional Individual Retirement Arrangement (IRA) is a key decision in retirement planning. The fundamental difference lies in their tax treatment. This calculator is designed to illustrate the long-term financial impact of that difference based on your assumptions about current and future tax rates.

How It Works

The calculator projects the after-tax value of your retirement savings for both account types.

• Traditional IRA: You contribute with pre-tax dollars, which may give you a tax deduction today. The calculator grows this full contribution amount over time. However, upon withdrawal in retirement, the entire balance is taxed at your estimated retirement tax rate.
• Roth IRA: You contribute with after-tax dollars, meaning no upfront tax deduction. The calculator first reduces your annual contribution by your current tax rate and then grows that smaller amount over time. The key benefit is that all qualified withdrawals in retirement are completely tax-free.

The Core Question: Taxes Now or Later?

This calculator helps you answer a simple question: is it better to pay taxes on your contributions now (Roth) or on your withdrawals later (Traditional)?

• If you expect to be in a higher tax bracket in retirement than you are today, the Roth IRA is often more advantageous. Paying taxes now at a lower rate is better than paying them later at a higher rate.
• If you expect to be in a lower tax bracket in retirement, the Traditional IRA may be the better choice, as you get the tax deduction today when you are in a higher bracket.

The calculator's results provide a clear monetary comparison to help guide your decision-making process.

Frequently Asked Questions