The core model is two tax-rate assumptions
Under this calculator’s equal pre-tax budget, Traditional grows the full amount and applies the modeled retirement tax rate at the end; Roth applies the modeled current tax rate first, then grows the remainder. With the same return and timing, a lower modeled rate later favors Traditional, a lower rate now favors Roth, and equal rates produce the same modeled value.
Real decisions add account-specific eligibility and deductibility, changing brackets, state taxes, contribution limits, withdrawal timing, required distributions, and qualified-distribution rules. Those factors can change the result, so use several rate scenarios and verify the rules for the exact 401(k), 403(b), governmental 457(b), or IRA involved.
Primary references: the IRS pages on designated Roth accounts, Roth IRAs, required minimum distributions, and SECURE 2.0 Roth matching guidance.
Method, example, and sources
How this calculator works
The model gives both options the same annual pre-tax budget. Traditional compounds the full annual amount and applies the entered retirement tax rate at the end. Roth first reduces the annual amount by the entered current tax rate, compounds the remainder, and treats the ending value as tax-free only under the model’s qualified-distribution assumption.
Worked example
With a $10,000 annual pre-tax budget, a 24% current marginal rate, an 18% retirement rate, a 7% return, and 25 years, the model estimates about $518,642 after tax for Traditional and $480,693 for Roth. Traditional is about $37,949 higher because the modeled tax rate is lower at retirement.
What the estimate leaves out
- The model uses one marginal rate now and one later; it does not simulate tax brackets, deductions, state taxes, or the timing of withdrawals.
- Eligibility, deductibility, contribution limits, employer matching, required distributions, and early-distribution rules are excluded.
- Returns and tax rules can change, and a qualified Roth distribution depends on account-specific requirements.
Primary sources
Frequently asked questions
What is the real difference between Roth and Traditional?
The simplified distinction is when income tax is paid. Eligible Traditional contributions may reduce taxable income now, and taxable withdrawals are generally included in income later. Roth contributions are made after tax, and qualified distributions can be excluded from income. Account type, eligibility, deductibility, and distribution rules matter outside this model.
So when does Traditional win?
In this equal-pre-tax-budget model, Traditional produces the higher after-tax value when the tax rate entered for retirement is below the current marginal rate. Real withdrawals may span several brackets and years, and a Traditional IRA contribution is not always deductible, so the displayed comparison is a scenario rather than a recommendation.
And when does Roth win?
In this model, Roth produces the higher value when the current marginal rate is below the rate entered for retirement. Qualified-distribution rules must be met for earnings to be excluded from income. Current law also removes lifetime RMDs for Roth IRAs and designated Roth accounts, while beneficiary distribution rules still apply.
Can I do both?
A plan may allow both pre-tax and designated Roth deferrals, and someone may also be eligible for IRA contributions. Applicable contribution limits, income limits, deductibility, and plan terms still apply. Splitting can diversify future tax treatment, but this calculator does not optimize the split.
Does the employer match go into the Roth?
SECURE 2.0 permits plans to let employees designate certain vested matching or nonelective contributions as Roth contributions after December 29, 2022. A plan has to offer the option, and tax reporting differs, so check the current plan document rather than assuming how the match is treated.