How to use the roth vs traditional calculator
- Enter the pre-tax amount you would put in a traditional account. The Roth contribution is worked out from it so both cost the same take-home pay.
- Enter your tax rate now and the rate you expect in retirement. Both are assumptions, and the defaults are examples.
- Enter the annual growth and the years until you withdraw.
- Compare the two after-tax balances, the break-even retirement rate, and the table of other retirement rates.
Formula
Roth contribution = pre-tax amount x (1 - tax rate now)
Growth multiple = (1 + growth)^years
Traditional after tax = pre-tax amount x growth multiple x (1 - tax rate later)
Roth value = Roth contribution x growth multiple
The two are equal when the rate later equals the rate now, so the break-even retirement rate is the rate you pay now under these assumptions.
Worked example
A $10,000 pre-tax budget at a 22% rate now means a Roth contribution of $7,800. At 6% growth for 25 years the multiple is 4.2919. The traditional account grows to $42,918.71 and, taxed at 15% later, leaves $36,480.90.
The Roth account grows to $33,476.59 with no tax at withdrawal, so the traditional account ends ahead by $3,004.31. At a 30% rate in retirement the traditional account would leave $30,043.10 and the Roth would win by $3,433.49.
Equal take-home cost
Putting $10,000 into a traditional account costs less take-home pay than putting $10,000 into a Roth, because the traditional contribution is taken before tax. To compare fairly, the Roth amount here is reduced by your tax rate now. This means the Roth balance starts smaller, and the question becomes whether growth plus tax-free withdrawals make up for it.
Why the break-even is your rate now
Both accounts end up multiplying by the same growth. The traditional side keeps (1 - later) of that and the Roth side keeps (1 - now). The growth rate cancels, so only the two tax rates decide the winner. Growth changes the size of the gap, never who is ahead.
What this does not capture
Real choices are messier than two rates. Employer matches, contribution limits, required minimum distributions, state taxes, tax brackets that shift as you withdraw, Medicare surcharges, early withdrawal penalties and income limits all matter. For Roth IRA growth alone see the Roth IRA calculator, and for an employer plan use the 401k calculator.
Assumptions and limits
- The tax rate now and the tax rate later are single flat percentages that you enter. No tax bracket schedule is applied.
- The same growth rate applies to both accounts, and the money is withdrawn in one step at the end.
- The pre-tax savings are assumed to be spent, not invested separately, which is the same as comparing equal take-home pay.
- Not modeled: employer match, contribution limits, required minimum distributions, state taxes, tax brackets, IRMAA and penalties. This is arithmetic with your inputs, not tax or investment advice.
Frequently asked questions
When does a Roth beat a traditional account?
In this model, when your tax rate in retirement is higher than your rate now. If it is lower, the traditional account ends ahead, and if they match the two tie.
Why does the growth rate not change the break-even?
Both balances are multiplied by the same growth, so it cancels out of the comparison. Growth only scales the dollar difference between the two.
Why is the Roth contribution smaller than the pre-tax amount?
Because the pre-tax amount would reduce your tax bill if put in a traditional account. To spend the same take-home pay, the Roth contribution is the amount left after tax at your rate now.
Can I rely on this to pick between Roth and traditional?
Use it to see how the trade-off works with your own assumptions. Your real rates, limits and rules will differ, so check them or ask a tax professional before deciding.