Compare Roth vs. Traditional 401(k) and IRA retirement accounts side-by-side, find your exact break-even tax rate, and see which option leaves more spendable cash in your pocket.
How to Use This Calculator
Evaluating whether to save in a pre-tax Traditional or an after-tax Roth account requires examining your current tax bracket against your expected future retirement bracket. Follow these four simple steps:
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Select your account type: Click the preset pill for an IRA ($7,000/yr limit), a 401(k) / 403(b) ($23,500/yr limit), or Custom to enter your own target contribution.
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Set your timeline and return: Enter your current age, planned retirement age, and expected annual investment return rate (a 7% to 8% return represents standard diversified equity indexes).
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Enter your tax rates: Input your current marginal tax bracket (Federal + State) and your anticipated effective tax rate during retirement withdrawals.
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Choose your reinvestment strategy: Select whether you plan to reinvest your upfront tax deductions into a taxable brokerage account or spend them, then review the primary verdict banner and exact break-even tax rate.
The Formula
The decision between Roth and Traditional rests on compound interest and the sequence of tax deductions. Here is the mathematical framework governing both accounts:
- C: Periodic contribution amount deposited into the retirement account ($/month).
- r: Monthly compounding investment return rate (Annual Return ÷ 12).
- n: Compounding horizon in months (Years to Retirement × 12).
- B₀: Existing starting retirement balance already invested.
- t_current: Your marginal income tax bracket today (the percentage saved on Traditional pre-tax deposits).
- t_retirement: Your anticipated effective income tax bracket on retirement distributions.
- Taxable_Savings_Payout: The future value of investing your upfront tax savings (C × t_current) into a taxable brokerage account, adjusted for long-term capital gains tax.
Example: $7,000 Annual IRA Contribution Over 35 Years
Consider David, a 30-year-old software designer who earns $95,000 annually. He plans to retire at age 65 (a 35-year investment horizon) and invests $7,000 per year (the 2026 IRA contribution limit) at an assumed 7.0% annual compound return.
David is currently in the 24% marginal tax bracket. When he retires at 65, he expects his mortgage to be paid off and his lifestyle expenses to drop, placing his effective retirement tax rate at 15%.
- Traditional Account: David contributes $7,000 pre-tax every year. Over 35 years at 7%, his account grows to $1,050,615 gross. Upon withdrawal at a 15% retirement tax rate, he pays $157,592 in income taxes, leaving $893,023 in spendable retirement income.
- Upfront Tax Savings: Each year, David saves $1,680 in taxes ($7,000 × 24%). By reinvesting that $1,680 refund annually into a taxable index fund at 7%, it grows to $252,148. After paying 15% long-term capital gains tax on the profits ($28,992), he pockets an additional $223,146.
- Total Traditional Spendable: $893,023 + $223,146 = $1,116,168.
- Roth Account: David contributes $7,000 after-tax. His account compounds to the exact same $1,050,615, but every single penny is 100% tax-free.
The Verdict: Because David's current tax rate (24%) is significantly higher than his future retirement tax rate (15%), Traditional wins by $65,553 in total spendable cash. The exact break-even tax rate is 21.2%: if David's retirement tax rate were to exceed 21.2%, Roth would deliver superior wealth.