Roth vs. Traditional 401k/IRA Contribution Calculator

The Core Difference: When You Pay Taxes

Both Roth and Traditional retirement accounts (like 401ks and IRAs) offer tax advantages, but they differ in *when* those advantages apply:

• Traditional: Contributions are typically made *pre-tax*, meaning they lower your taxable income today. Investments grow tax-deferred, but withdrawals in retirement are taxed as ordinary income.
• Roth: Contributions are made *after-tax*, meaning you pay taxes on the money now. Investments grow tax-deferred, and qualified withdrawals in retirement are completely **tax-free**.

How This Calculator Compares Strategies

This calculator projects the *total after-tax value* of your retirement portfolio under two different strategies for your *future* contributions. It correctly handles any existing balances you may already have in either account type.

1. Existing Balances: Your current Roth and Traditional balances are projected forward. The future value of the Traditional balance is adjusted using your "Est. Retirement Tax Rate" to determine its after-tax value. This value remains the same regardless of your future strategy.
2. Equalizing Contributions: To ensure a fair comparison, this calculator assumes the "Annual Contribution" you enter is the *pre-tax* amount. It then calculates the equivalent *after-tax* contribution for the Roth strategy based on your "Current Marginal Tax Rate."
3. Growth Calculation: All balances and contributions are assumed to grow at the same "Est. Annual Return" rate. See how these returns compound over time with our Compound Interest Calculator.
4. Comparison: The calculator determines which strategy results in a higher total after-tax portfolio value by comparing the after-tax growth of the new contributions under each scenario.

The comparison ultimately hinges on whether your tax rate is higher now or expected to be higher in retirement. Not sure what your tax rate is? Use the Tax Bracket Modeler to find out.

Which is Better for You? (The Tax Rate Gamble)

The general rule of thumb is:

• If you expect your tax rate to be higher in retirement than it is now, the Roth strategy is likely better (pay lower taxes now).
• If you expect your tax rate to be lower in retirement than it is now, the Traditional strategy is likely better (get the tax break now when it's more valuable).
• If you expect your tax rate to be the same, both options theoretically result in the same after-tax amount (though Roth offers more certainty about future tax rates).

This calculator helps you quantify this decision based on your specific tax rate assumptions. Remember that future tax rates are unknown, making this an educated guess.