Roth vs Traditional IRA Calculator

How it is calculated

The tool treats your annual contribution as pre-tax income and compares what is left after tax in each account.

F = ((1 + r)n − 1) ÷ r (growth factor for one deposit a year, made at year end)
Roth = C × (1 − tnow) × F
Traditional = C × F × (1 − tret)
Roth advantage = Roth − Traditional

C is the yearly amount in dollars, r the annual return as a decimal, n the years, and both tax rates are percentages from 0 to 100. In the Roth the tax is paid first, so only the after-tax part is invested and it is never taxed again. In the Traditional the whole amount is invested and the final balance is taxed once. Because the growth factor appears on both sides, the advantage percentage depends only on the two tax rates: if they are equal, the results are identical. The percentage is the difference divided by the Traditional value. No result is shown for a return of −100% or lower, years above 100, a tax rate outside 0–100, or an empty field. Contribution limits, income limits and early-withdrawal penalties are not modelled.

Common mistakes

• Entering the maximum after-tax Roth contribution and the same amount for Traditional. The tool assumes the amount is pre-tax income for both, so the Roth invests less (6,000 becomes 4,680 at a 22% rate).
• Entering a tax rate as a decimal. 22 means 22%; 0.22 is read as 0.22% and makes both accounts look nearly identical.
• Using the top bracket instead of the effective rate. The tool applies one flat rate to everything; the rate on the last dollar and the average rate are different numbers.
• Expecting the rate to change with income during 30 years. Both rates are fixed single values, so a changing career path must be tested with several runs.
• Expecting a higher investment return to favour one account. The same growth applies to both, so only the two tax rates decide the winner.