Traditional vs. Roth IRA/401(k) Calculator

How to calculate Traditional vs Roth IRA/401(k) Calculator?

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)

Using the Traditional vs Roth IRA/401(k) Calculator calculator: an example

Example inputs: current tax 22%, retirement tax 15%, annual contribution $6,500, years until retirement 30, growth 7%.

Step-by-step calculation:

1. Compute the future-value factor: ((1+0.07)^30 - 1)/0.07 ≈ 94.46, so pre-tax future value ≈ $6,500 × 94.46 ≈ $614,970.
2. Traditional after-tax: tax at retirement (15%) → $614,970 × (1 - 0.15) ≈ $522,724.
3. Roth path: contributions after current tax (22%) → $6,500 × (1 - 0.22) = $5,070; future value ≈ $5,070 × 94.46 ≈ $478,953.
4. Compare: Traditional ≈ $522,724 vs Roth ≈ $478,953 — Traditional is about $43,771 larger given these assumptions.

Frequently Asked Questions

Which option is generally better?

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.

What if tax rates change over time?

Future tax rates are uncertain; run multiple scenarios with different retirement tax assumptions to see how sensitive the outcome is to rate changes.

How do employer matches affect the comparison?

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.