Project tax-free Roth IRA growth and compare it against a taxable account.
The Roth IRA's advantage comes from tax-free compounding: you pay tax now on contributions, but every dollar of growth is permanently tax-free. The winner between Roth and Traditional IRA depends entirely on whether your tax rate will be higher today or in retirement. If you expect to be in a higher bracket later, the Roth wins because you're locking in today's lower rate on contributions. The traditional IRA comparison normalises for the tax deduction by growing the equivalent pre-tax amount, then applying retirement taxes.
Roth future value
Roth FV = Current balance × growth + Monthly contribution × growth factor
Traditional IRA after-tax comparison
Traditional after-tax = Pre-tax balance × (1 − retirement tax rate)
2024 contribution limits and tax rules are used. Limits are indexed to inflation annually. Consult a tax advisor for Roth conversion and eligibility questions.
If you expect your tax rate to be higher in retirement than today, choose Roth. If you expect a lower rate in retirement, choose Traditional. Early-career savers are often in lower brackets now — a strong case for Roth. Compare the 'Roth vs Traditional Advantage' result to see which wins at your assumed rates.
For 2024: $7,000 per year if under age 50, $8,000 if you're 50 or older (the extra $1,000 is the catch-up contribution). There are income limits for direct Roth contributions — if you exceed the phase-out range, you may use a backdoor Roth strategy.
To withdraw earnings tax and penalty-free, the account must be at least 5 years old AND you must be 59½ or older (or meet another qualifying exception). Contributions (not earnings) can always be withdrawn tax and penalty-free.
A taxable brokerage account with the same contributions grows at the same gross return, but investment income (dividends, capital gains distributions) is taxed each year. The tax drag reduces the effective growth rate and compounds against you over decades. The Roth's tax-free growth typically makes it far more valuable over long horizons.