The Great Tax Debate: Roth vs. Traditional Comparison Calculator
When saving for retirement in the U.S., one of the biggest decisions you'll make is choosing between a Roth or a Traditional account for your IRA or 401(k). The choice boils down to a simple question: "Do you want to pay taxes now or later?" The Roth vs. Traditional Comparison Calculator is a powerful tool designed to help you analyze this decision. It models the long-term outcomes of both account types, helping you see which one might leave you with more money in retirement.
This calculator is for anyone unsure about which retirement account is right for them. By inputting your current and expected future tax rates, along with your investment details, you can get a side-by-side comparison of your nest egg's after-tax value. A Traditional account gives you a tax deduction today, but you pay taxes on withdrawals. A Roth account has no upfront deduction, but withdrawals are tax-free. This tool illuminates that trade-off, empowering you to make a more informed and strategic choice for your long-term wealth.
Why Compare Roth vs. Traditional Accounts?
- Clarifies the Core Trade-Off: It provides a clear, numerical comparison of paying taxes now versus paying them in retirement.
- Tax Rate Analysis: The "better" choice depends almost entirely on your tax rate today compared to your expected tax rate in retirement. This tool lets you model different scenarios.
- Informs Contribution Decisions: For those with access to both a Roth 401(k) and a Traditional 401(k), this calculator can help you decide how to allocate your contributions.
- Long-Term Financial Planning: Making the right choice can result in tens or even hundreds of thousands of dollars more in after-tax money during your retirement years.
How to Use the Roth vs. Traditional Comparison Calculator
Our tool simplifies a complex, long-term tax question.
- Enter Investment Details: Provide your annual contribution amount, your current age, and the age you plan to retire.
- Set Tax Rate Assumptions: This is the most critical step. Enter your current marginal tax rate and your best estimate for what your tax rate will be in retirement.
- Provide Investment Return: Input your expected average annual rate of return.
- Compare the Outcomes: Click the button to see a side-by-side comparison of the final after-tax value of a Roth account versus a Traditional account. The calculator will highlight which option comes out ahead based on your assumptions.