Traditional IRA vs. Roth IRA Calculator
Decide whether a Traditional IRA (tax-deductible contributions today, taxed on withdrawal) or a Roth IRA (after-tax contributions today, 100% tax-free withdrawals in retirement) yields higher after-tax wealth.
Formula & Methodology
Compare after-tax terminal wealth of Roth vs Traditional IRAAnnual ContributionSubject to US IRS IRA limits ($7,000 in 2024).
Current Tax Rate (%)Tax rate paid on income today.
Retirement Tax Rate (%)Estimated tax rate during retirement withdrawals.
Practical Worked Example
A US worker in the 24% bracket expects to retire in the 15% bracket in 25 years with $7,000 annual IRA contributions at 8% returns.
Interpretation & Industry Benchmarks
The decision between Roth and Traditional hinges entirely on comparing your current tax rate vs your future retirement tax rate.
Take deduction at high current rates, withdraw at low future rates.
Pay low taxes today, enjoy 100% tax-free withdrawals forever.
Industry Nuance: Roth IRAs have no Required Minimum Distributions (RMDs) during the owner’s lifetime and pass tax-free to heirs.
Analytical Limitations
- US IRS tax code specific; subject to annual income phaseout thresholds.
Frequently Asked Questions
What is the main difference between Traditional and Roth IRA?
Traditional IRA contributions are tax-deductible today but taxed upon withdrawal in retirement. Roth IRA contributions are made with after-tax money, but all qualified withdrawals in retirement are 100% tax-free.