Phase 2 · Wealth & Leverage
Roth vs Traditional Calculator
The whole debate reduces to one thing: your tax rate now vs in retirement. Fund both from the same pre-tax budget and watch the after-tax winner — and the exact rate that flips it.
Under the hood
The math, fully exposed
Both accounts are funded from the same pre-tax budget each year, compounded as an annuity:
Growth factor = ((1 + r)n − 1) ÷ r (r = annual return, n = years)
Traditional = budget × growth factor × (1 − taxretirement)
Roth = budget × (1 − taxtoday) × growth factor
Break-even: Roth = Traditional exactly when taxretirement = taxtoday
- It is purely a tax-rate bet: the return, budget and horizon scale both accounts identically — they cancel out. Only the two tax rates decide the winner.
- Traditional contributes more upfront: the full pre-tax dollar goes to work; Roth invests what survives today's tax. Traditional only wins if a lower retirement rate makes up the difference.
- Roth's edge isn't only math: no RMDs, tax-free to heirs, and protection if tax rates rise — reasons to lean Roth when the numbers are close.
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Answers
Frequently asked questions
Roth or Traditional — which is better?
It comes down to one comparison: your tax rate today versus your tax rate in retirement. Traditional deducts contributions now and taxes withdrawals later, so it wins if your rate falls in retirement. Roth is taxed now and tax-free later, so it wins if your rate rises (or you expect higher rates generally). When the two rates are equal, the after-tax outcome is mathematically identical.
Why does this compare on a "pre-tax budget"?
Because it is the only apples-to-apples comparison. A dollar in a Traditional account is a pre-tax dollar; a dollar in a Roth account has already been taxed. To compare fairly we start from the same pre-tax income: Traditional contributes the whole amount, Roth contributes what is left after today's tax. Otherwise Roth looks artificially better because you are quietly contributing more real money.
What is the break-even tax rate?
It is the retirement tax rate at which Roth and Traditional produce the exact same after-tax balance — and it equals your current marginal rate. If you expect your retirement rate to be higher than that, Roth wins; lower, Traditional wins. The further apart the two rates, the bigger the gap.
When should I lean Roth even if the math is close?
Roth has perks the headline math ignores: no Required Minimum Distributions, tax-free inheritance for heirs, and a hedge against future tax-rate increases. Early-career savers in a low bracket, anyone expecting rising income, and those who value tax diversification often favor Roth even when Traditional edges it on paper. This is an educational model — confirm with a tax professional.