Traditional vs Roth IRA

Written by Rohan Mehta, Finance Specialist Reviewed by Vikram Sen, Technical Reviewer Last updated: June 1, 2026 Last verified: June 1, 2026 · Methodology · Accuracy policy

An educational after-tax comparison assuming equal pre-tax dollars available to save. Eligibility, income limits, conversions, and RMDs are not modeled.

FV of annual C uses ordinary annuity: C × ((1+r)^n − 1) ÷ r (r = annual return).

Tip: Match inputs to your SSA statement, plan documents, and the IRS tables for the year you are planning.

Cluster: Retirement hub · 401(k) contribution % · Compound interest · Finance hub · Percentage guide

Traditional IRAs defer tax until withdrawal; Roth IRAs use after-tax contributions and tax-free qualified withdrawals.

Enter an equal pre-tax contribution budget, years, expected return, and today’s vs retirement tax rates.

Annual Pre-Tax Budget

Dollars available before today’s tax

Years to Grow

Contribution years

Expected Annual Return (%)

Assumed growth rate

Tax Rate Now (%)

Effective rate on contribution

Tax Rate in Retirement (%)

Effective rate on Trad withdrawals

Advantage (Roth − Trad)

Understanding Traditional vs Roth IRA

Real-world scenario: Save $7,000 pre-tax budget/yr for 25 years at 7%; tax now 24%; tax later 22%.

What is Traditional vs Roth IRA?

An educational after-tax comparison assuming equal pre-tax dollars available to save. Eligibility, income limits, conversions, and RMDs are not modeled.

Equal pre-tax budget — Roth invests the after-tax remainder
Same return % in both accounts
Qualified Roth withdrawals assumed tax-free

The Formula

Equal Pre-Tax Budget Comparison

Trad after-tax = FV × (1 − t_retire); Roth FV = [C×(1−t_now)] grown tax-free

Worked Example

Scenario: Save $7,000 pre-tax budget/yr for 25 years at 7%; tax now 24%; tax later 22%.

Step 1: Trad invests $7,000/yr → FV then × (1−0.22)

Step 2: Roth invests $5,320/yr → FV tax-free

Step 3: Compare ending after-tax values

Answer: See which account wins on after-tax dollars for your tax-rate path.

Common Use Cases

Bracket bets: higher taxes later → lean Roth
Lower taxes later: Traditional may win
Contribution season: pick a default lane

Pro Tips

Use effective tax rates, not just brackets
State tax can flip the winner
Diversifying Trad + Roth is often rational

Limitations: Traditional vs Roth IRA results are educational retirement planning aids—not tax, Social Security, investment, or legal advice. Confirm figures with the IRS, SSA, plan administrators, and a qualified professional.

FAQ

Why does Roth invest less up front?

With an equal pre-tax budget, you pay tax now on the Roth path, so fewer dollars enter the account—but growth and qualified withdrawals are tax-free.

Are IRAs subject to income limits?

Yes for direct Roth contributions and Traditional deductibility. This tool ignores eligibility—confirm with IRS rules for your MAGI.

Authoritative References

For retirement education, consult:

IRS retirement plans — contribution limits and RMDs
Social Security Administration — benefit estimates
Investor.gov — investor education