Roth vs Traditional IRA

Traditional IRA contributions are made with pre-tax dollars (lowering your current taxable income), and withdrawals in retirement are taxed as ordinary income. Roth IRA contributions are made with after-tax dollars, but qualified withdrawals (including all growth) are completely tax-free. The right choice depends on whether your tax rate today is higher or lower than your expected tax rate in retirement.

Choose Roth if you expect a higher tax rate in retirement, you are early in your career with growing income, you want tax-free withdrawal flexibility, you plan to leave money to heirs (Roth has no Required Minimum Distributions), or your current marginal bracket is 12% or lower. The calculator shows the exact break-even tax rate so you can decide with numbers, not gut feel.

The break-even rate is the retirement tax rate at which both options produce identical after-tax wealth. If your retirement tax rate is higher than the break-even, Roth wins. If it is lower, Traditional wins. This calculator computes your personal break-even rate based on your contribution amount, time horizon, expected return, and current tax bracket — solving the equation: Roth balance = Traditional balance × (1 − retirement tax) + side account.

For 2025, the IRA contribution limit is $7,000 per year if you are under 50, and $8,000 if you are 50 or older (includes a $1,000 catch-up contribution). This combined limit applies across both Roth and Traditional IRAs — you cannot contribute $7,000 to each. Direct Roth contributions phase out at $150,000 to $165,000 (Single) or $236,000 to $246,000 (Married Filing Jointly) for 2025.

A Backdoor Roth is a strategy where high earners (above the Roth income limit) contribute to a non-deductible Traditional IRA and immediately convert it to Roth. There are no income limits on Roth conversions, so this is a legal way to fund a Roth IRA when you exceed direct contribution limits. Watch out for the pro-rata rule if you have other pre-tax IRA balances — it can create unexpected tax bills.

A Roth conversion makes sense when (1) your current marginal tax rate is lower than your expected retirement rate, (2) you have funds outside the IRA to pay the conversion tax, (3) you have a long time horizon for tax-free growth, or (4) you want to reduce future Required Minimum Distributions. PRO users get a multi-year conversion ladder analysis showing the optimal amount to convert each year.

Most calculators contribute the same nominal dollar amount to both options, which favors Roth unfairly. This tool models the FAIR comparison: Traditional contributors invest the tax savings (contribution × current tax rate) into a taxable side account that grows with realistic dividend and turnover drag. This is the apples-to-apples method recommended by Vanguard and academic research.

Roth IRA earnings can be withdrawn tax-free only after the account has been open for 5 years AND you are 59½ or older (or meet another qualifying exception). Contributions (not earnings) can always be withdrawn tax- and penalty-free. Each Roth conversion has its own separate 5-year clock for the converted amount, important to track if you plan to access converted funds early.