IRA Calculator (Traditional vs Roth)

What an IRA actually is

An IRA (Individual Retirement Account) is a US tax-advantaged retirement account you can open and fund on your own — no employer required. Unlike 401(k)s which are employer-sponsored, IRAs are owned and controlled entirely by you. You choose the brokerage (Fidelity, Vanguard, Schwab, etc.), the investments inside, and the contribution timing. Roughly 50 million Americans have an IRA, and they hold over $13 trillion in retirement assets combined.

Two main types: Traditional IRA (pre-tax contributions, taxed in retirement) and Roth IRA (after-tax contributions, tax-free in retirement). Both grow tax-free along the way — the only difference is when you pay tax. That single difference, combined with how your tax bracket changes over time, drives the entire Traditional vs Roth decision.

IRAs are best used alongside 401(k)s, not instead of them. The typical priority order: (1) capture full 401(k) employer match, (2) max IRA contribution ($7,000/year), (3) max remaining 401(k) contribution, (4) HSA if eligible, (5) taxable brokerage for any further savings. The calculator above models the IRA-specific tax math at step 2.

Traditional vs Roth — the core difference

Traditional IRA

• Contribution year: Contribute pre-tax dollars. $7,000 contribution → $7,000 × marginal_tax_rate saved in current taxes.
• Growth years: All investment growth is tax-deferred (no annual taxes on dividends, capital gains).
• Retirement: Every dollar withdrawn is taxed as ordinary income at your retirement tax bracket.
• Required Minimum Distributions (RMDs): Yes, starting at age 73 (74 for those born 1960+). Forced withdrawals.

Roth IRA

• Contribution year: Contribute after-tax dollars. No immediate tax deduction.
• Growth years: All investment growth is tax-free.
• Retirement: All withdrawals (contributions + growth) are 100% tax-free.
• Required Minimum Distributions: None during your lifetime. The Roth grows untouched as long as you want.

The math behind the math

If your current tax rate equals your retirement tax rate exactly, Traditional and Roth are mathematically equivalent. Don’t believe it? Here’s the proof:

• Traditional: Contribute $7K pre-tax → grows to $X → withdraw and pay tax at rate t → keep $X × (1−t)
• Roth: Contribute $7K post-tax (effectively contributing $7K of value because you already paid tax on it elsewhere) → grows to $X × (current_after_tax_value / before_tax) = $X × (1−t) → all tax-free → keep $X × (1−t)

They’re identical at equal tax rates. The winner is determined by which rate is higher — your current rate (favoring Roth, since you’re paying tax at the lower future rate) or your retirement rate (favoring Traditional, since you saved at the higher current rate).

Which one wins for you

Roth IRA wins when:

• You’re early in your career. Lower current income → lower current tax rate. You’ll likely earn more (and be taxed more) later.
• You expect higher tax rates in retirement. US federal rates are at historical lows. Some financial planners expect rates to rise to address national debt.
• You’re planning early retirement (FIRE). Roth contributions (not earnings) can be withdrawn anytime tax-free. Bridge funding for the gap years.
• You want estate planning flexibility. No RMDs means you can leave Roth assets compounding tax-free for your heirs.
• You’re saving for a goal beyond retirement. Roth contributions (not growth) can be withdrawn anytime penalty-free. More flexible than Traditional.
• You’re at 12% or 22% tax bracket. Locking in low taxes now hedges against future increases.

Traditional IRA wins when:

• You’re in peak earning years. 32%+ marginal tax bracket. The upfront tax savings are large.
• You’re confident of significantly lower retirement income. Common for high earners who plan to dramatically reduce spending.
• You want immediate tax relief. Tax savings now feel more concrete than future tax-free withdrawals.
• You’ll reinvest the tax savings. If you put the current tax savings into another investment, the math improves for Traditional.
• You expect to move to a low-tax state in retirement. Reducing state income tax exposure shifts math toward Traditional.

The “hedge” strategy: do both

If you can’t decide, split contributions 50/50 between Traditional and Roth IRA (within the combined $7,000 limit). Hedges against tax rate uncertainty. Provides tax diversification in retirement (some taxable withdrawals from Traditional, some tax-free from Roth). Many financial planners default to this for clients in the 22-24% bracket who could go either way.

2025 limits and income rules

Contribution limits (combined Traditional + Roth)

• Under 50: $7,000 per year total across all your IRAs
• 50 and over: $8,000 per year (additional $1,000 catch-up)
• Spousal contributions allowed even for non-earning spouse if filing jointly

Roth IRA income limits (2025)

High earners are phased out of direct Roth contributions:

• Single filers: Phase-out begins at $150,000 MAGI, fully phased out at $165,000
• Married filing jointly: Phase-out begins at $236,000 MAGI, fully phased out at $246,000
• Married filing separately: Phase-out at $0-$10,000 MAGI (essentially no Roth allowed)

The “Backdoor Roth” workaround: high earners can contribute to a Traditional IRA (no income limit), then immediately convert to Roth. Legal under current rules, though periodically threatened by legislation.

Traditional IRA tax deduction limits (2025)

If you’re covered by a workplace retirement plan (401(k), 403(b), etc.), Traditional IRA deductions phase out:

• Single, covered by workplace plan: Full deduction below $79,000, phased out by $89,000
• Married jointly, both covered: Full deduction below $126,000, phased out by $146,000
• Married jointly, only one covered (you covered): Phase-out $126-146K
• Married jointly, only one covered (you not covered): Phase-out $236-246K
• Not covered by workplace plan: No income limit on deduction

Withdrawal rules

• Age 59½: Standard threshold. Earlier withdrawals trigger 10% penalty + taxes (Traditional) or 10% penalty on earnings only (Roth — contributions always penalty-free).
• Roth 5-year rule: Earnings withdrawals require 5+ years since first Roth contribution AND age 59½, or face taxes/penalties.
• RMDs: Traditional IRA at age 73 (or 74 if born 1960+); Roth IRA never required during owner’s lifetime.

IRA Calculator FAQ

Why doesn’t the calculator show the value of tax savings from Traditional?

To keep the comparison fair and simple, the calculator assumes you contribute the same dollar amount to both Traditional and Roth ($7K vs $7K). Traditional gives you immediate tax savings ($7K × 24% = $1,680/year) that you could theoretically invest in a taxable account. The breakdown shows this “Traditional: total tax savings over life” — about $50,400 over 30 years in defaults. If you invest these savings at 7% for 30 years, that’s approximately another $158K (taxable). With ~15% capital gains tax, the after-tax value is about $135K — added to Traditional’s $634K = $769K total. Still less than Roth’s $813K in this scenario.

Should I switch from Traditional to Roth?

Two options: (1) stop new Traditional contributions and start Roth, easy. (2) “Roth conversion” — move existing Traditional dollars to Roth, but pay tax on the converted amount now. Roth conversions make sense in low-income years (sabbatical, between jobs, early retirement before pension/Social Security kicks in). Convert just enough to fill up lower tax brackets without bumping into higher ones.

Can I have a 401(k) AND an IRA?

Yes — they’re separate accounts with separate contribution limits. Total annual capacity for someone under 50 in 2025: $23,500 (401k) + $7,000 (IRA) = $30,500. Plus employer match on the 401(k). Most financial planners recommend doing both.

What’s the difference between Roth IRA and Roth 401(k)?

Same tax treatment (after-tax in, tax-free out), but Roth 401(k) has much higher contribution limits ($23,500 vs $7,000) and no income limits. Roth IRA has more investment flexibility (any brokerage product vs employer’s plan menu) and allows penalty-free withdrawal of contributions anytime. Use both if available.

What if my current tax rate equals my retirement tax rate?

Mathematically a wash — both give identical after-tax retirement values. In that case, choose Roth for the non-math benefits: no RMDs, more flexibility, hedge against future tax law changes, easier estate planning. Most planners default to Roth in tie scenarios.

What about non-US retirement accounts?

This calculator is US-specific. UK equivalents: SIPP (similar to Traditional IRA) and ISA (similar to Roth — though ISA isn’t retirement-specific). AU: Super contributions have similar pre-tax/after-tax dynamics. CA: RRSP (Traditional-like) and TFSA (Roth-like). The fundamental Traditional vs Roth tradeoff applies in most developed retirement systems.