Roth vs. Traditional IRA
Compare after-tax outcomes at retirement under different tax-rate assumptions.
Tax now or tax later?
Traditional accounts reduce your taxable income now; you pay tax on withdrawals in retirement. Roth accounts are funded with post-tax dollars; withdrawals are tax-free. The decision comes down to a simple question: will your tax bracket be higher now or in retirement?
Early-career, low-bracket savers usually benefit from Roth. Late-career, high-bracket earners usually benefit from Traditional (with a potential Roth-conversion strategy in early retirement to capture low brackets on the way out). Most practical advice: diversify — some in each bucket for flexibility.
Frequently asked questions
Roth or Traditional — how do I decide?
The core question: will your tax bracket be higher now or in retirement? Pay taxes in whichever era has the lower rate. If you're early in your career with a low bracket, Roth is usually better. If you're mid-career at the 24%+ bracket, Traditional often wins. Many people split contributions to hedge.
Can I contribute to both?
Yes. 401(k) and IRA are separate buckets; within each, you can split between Roth and Traditional flavors. The IRS limit ($23,000 for 401(k), $7,000 for IRA) is across both flavors combined — you can't double the limit by having both.
What about the Roth conversion ladder?
An advanced strategy: convert Traditional balances to Roth in low-income years (early retirement, sabbaticals, layoffs) at a lower tax rate than you'd pay in high-earning years. After a 5-year waiting period, you can withdraw converted principal penalty-free before age 59½ — this is the basis of most FIRE early-retirement plans.
Does tax-bracket math really work out that simply?
The 'break-even' math assumes identical dollar amounts, but Roth actually lets you save MORE effective dollars because you're contributing post-tax. $7,000 Roth = ~$9,000 Traditional equivalent for a 22%-bracket saver. Most Roth-vs-Traditional calculators (including this one) account for this via the 'equivalent after-tax contribution' option.
Advertisement
728 × 90