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Roth vs Pre-Tax Contribution Calculator

Enter your contribution, tax rates and return to see which account leaves you with more money.

How it is calculated

Both paths have the same out-of-pocket cost. With g = (1 + return ÷ 100)years, the Roth result is contribution × g, taxed at nothing on withdrawal. The pre-tax path puts the same contribution in the account, taxed at the retirement rate on withdrawal: contribution × g × (1 − retirement_tax%). The upfront tax saving, contribution × current_tax%, is invested separately, and only its growth is taxed at the capital gains rate when sold: refund + (refund × g − refund) × (1 − cg%). Pre-tax final is the taxed account plus that side account. The advantage line is the absolute gap between the two finals, so compare the two finals to see which wins. All tax rates must be under 100%.

Worked example

You contribute 7,000, invested for 25 years at 7%, with a 24% current tax rate, 22% retirement rate and 15% capital gains rate. Growth factor: 1.0725 = 5.427. Roth: 7,000 × 5.427 = $37,992.03. Pre-tax account after tax: 37,992.03 × 0.78 = 29,633.78. Upfront saving: 7,000 × 24% = 1,680, which grows to 9,118 and, after 15% tax on its gain, is $8,002.37. Pre-tax total: $37,636.16. Roth wins by $355.87, as the retirement rate is nearly the current rate.

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Common mistakes

  • Spending the tax saving. The pre-tax path only competes if the refund is invested; the tool assumes it goes into a taxable account, so skipping it makes the pre-tax path look worse than the comparison shows.
  • Entering the same rate for now and retirement and expecting a tie. With equal tax rates, the capital gains tax on the side account still tilts the result slightly in favour of Roth.
  • Using the top bracket rather than the effective rate. Withdrawals in retirement fill the lower brackets first, so the average rate on them is often below your top rate.
  • Entering rates as decimals (0.24). The fields are percents.
  • Reading the advantage as a certainty. It depends on future tax law, your income and your return, so test several retirement tax rates.

About this calculator

The choice between a Roth and a pre-tax (traditional) retirement contribution comes down to when you pay tax: a pre-tax contribution to a 401(k) or traditional IRA lowers your taxable income today but is taxed as ordinary income on withdrawal, while a Roth contribution is made with already-taxed money and grows completely tax-free. A fair side-by-side comparison has to account for what happens to the tax savings the pre-tax option generates — the honest comparison invests that up-front tax refund in a taxable account rather than spending it, since otherwise the pre-tax path looks artificially better.

The result usually comes down to your current tax rate versus your expected tax rate in retirement: if you expect to be in a lower bracket later, pre-tax tends to win; if you expect a similar or higher bracket, Roth tends to come out ahead because none of the eventual withdrawal is taxed.

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