Invest Insights

Roth or traditional: which leaves more after tax?

Enter a yearly contribution, the years until you withdraw, an assumed return, your marginal federal tax rate now and the rate you expect when you withdraw. The comparison puts the same after-tax money in today on both sides, then shows what each is worth after tax, the difference and the withdrawal tax rate at which they break even. Our guide IRA, Roth, taxable or HSA: which account does what covers the accounts themselves.

An illustration, not a forecast or a recommendation. Results are based only on the figures, the assumed return and the tax rates you enter. Returns vary and can be negative, and no one knows future tax rates. Taxes, trading costs and eligibility rules are simplified. This comparison does not check eligibility, income limits or contribution limits, and it leaves out state tax, the deductibility of traditional IRA contributions and required minimum distributions. For your own situation, see the IRS publications or a tax professional. The figures below are a fictional example. Calculations run in your browser; nothing you enter is sent or saved. See our privacy notice for site analytics.

Contributions and growth
The amount you'd put into the account each year, Roth or traditional. Put in at the start of each year.
You contribute every year for this many years, then withdraw everything at the end. 1 to 60.
Your assumption, the same for both accounts. From −50 to 30.
Tax rates
The rate on your last dollar of income now, from 0 to 50.
A guess, from 0 to 50. The whole withdrawal is taxed at this one rate.
The traditional contribution's tax saving

A traditional contribution is deducted from taxable income, so it costs less take-home pay than a Roth contribution of the same size. To compare them at the same after-tax cost, choose what happens to that saving.

Each year's tax saving is
Percentage points taken off the return each year for taxes on dividends and gains, from 0 to 10. Enter 0 to ignore the taxable account's taxes entirely; that flatters the traditional side.

Use dollar amounts with a decimal point (for example 7,000.00) and percentages as plain numbers (22 means 22%). Every box needs a value.

How this works

Both sides cost the same after-tax money today, so the only differences are when the tax is paid and at what rate. The symbols: C is the yearly contribution, n the years, r the assumed return, t₀ your current rate, t₁ the rate at withdrawal and d the tax drag, all as decimals.

  • Growth factor. Contributions go in at the start of each year and everything is withdrawn at the end of year n. $1 a year grows to A = (1 + r) + (1 + r)² + … + (1 + r)ⁿ = (1 + r) × ((1 + r)ⁿ − 1) ÷ r, or n when r is 0.
  • Saving invested. Roth after tax = C × A. Traditional after tax = C × A × (1 − t₁) + C × t₀ × A′, where A′ is the growth factor at the return r − d. Break-even withdrawal rate = t₀ × A′ ÷ A, which equals t₀ when the drag is 0 and is a little below t₀ otherwise.
  • Saving spent. The traditional contribution C costs C × (1 − t₀) of take-home pay, so the Roth is C × (1 − t₀) a year. Roth after tax = C × (1 − t₀) × A. Traditional after tax = C × A × (1 − t₁). Break-even withdrawal rate = t₀.
  • When the rate now and the rate at withdrawal are the same (and the taxable account's taxes are ignored, or the saving is spent), the two come out equal.

Assumptions and what it leaves out

  • The return is your assumption and is the same every year in both accounts. Real returns vary and can be negative.
  • Each withdrawal is taxed at the single marginal rate you enter, not across tax brackets. Roth withdrawals are assumed to be qualified and tax-free.
  • The taxable account's taxes are represented only by the yearly drag; no further capital gains tax is charged when it is sold.
  • It does not check whether you are eligible to contribute, income limits for Roth contributions, contribution limits or whether a traditional IRA contribution is deductible. State tax, required minimum distributions, early-withdrawal penalties, employer matches and trading costs are left out.
  • This is general education, not tax or investment advice.

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