Determine whether a Traditional or Roth IRA/401(k) is more beneficial for your retirement savings based on your current and expected future tax rates.
Immediate Tax Savings (Traditional):
1430
Net Value at Retirement (Traditional):
521895.844
Net Value at Retirement (Roth):
613995.111
Difference (Traditional vs. Roth):
-92099.267
Compare the after-tax retirement value of pre-tax (Traditional) contributions versus after-tax (Roth) contributions using your current and expected retirement tax rates and projected investment growth.
Key formulas: net_traditional = annual_contribution * (((1+g)^n - 1)/g) * (1 - retirement_tax_rate); net_roth = annual_contribution * (1 - current_tax_rate) * (((1+g)^n - 1)/g)
net_traditional = annual_contribution * (((1+g)^n - 1)/g) * (1 - retirement_tax_rate); net_roth = annual_contribution * (1 - current_tax_rate) * (((1+g)^n - 1)/g)
Example inputs: current tax 22%, retirement tax 15%, annual contribution $6,500, years until retirement 30, growth 7%.
It depends on tax rates: if your current tax rate is higher than your expected retirement tax rate, a Traditional account often yields a larger after-tax balance; if your current rate is lower, Roth can be more advantageous.
Future tax rates are uncertain; run multiple scenarios with different retirement tax assumptions to see how sensitive the outcome is to rate changes.
Employer matches are typically pre-tax and effectively treated like Traditional contributions; include them as pre-tax contributions and tax them at withdrawal when comparing options.
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