What is a Roth IRA?
A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement savings account where you contribute after-tax dollars. Unlike a Traditional IRA, you get no tax deduction today — but your money grows completely tax-free, and qualified withdrawals in retirement are also 100% tax-free. Created by the Taxpayer Relief Act of 1997 and named after Senator William Roth, it has become one of the most powerful retirement tools for Americans, especially those who expect to be in a higher tax bracket in retirement.
Roth IRA vs Traditional IRA — what's the difference?
The core difference is when you pay taxes. Both accounts offer tax advantages — they just apply at different points in time:
Traditional IRA: Pay Tax Later
Contributions are often tax-deductible. You save on taxes today, but you'll pay regular income tax on everything you withdraw in retirement.
Roth IRA: Pay Tax Now
You contribute after-tax dollars. No immediate tax break, but your investments grow 100% tax-free and qualified withdrawals are also tax-free.
How can this calculator help you?
Choosing between Roth and Traditional IRA is one of the most impactful tax decisions you can make — and it depends entirely on your personal tax situation. This calculator projects the after-tax value of both accounts side by side, so you can see which account leaves you with more money at retirement based on your current tax rate, expected retirement tax rate, and time horizon. Small differences in assumptions can lead to dramatically different outcomes over 20–30 years.
How to use Finzony's Roth IRA calculator
Get your personalized Roth vs Traditional comparison in just a few steps:
- Enter your annual contribution: Up to $7,000 for 2024 ($8,000 if age 50+). Even smaller amounts make a significant difference over time.
- Set your current tax rate: This is your marginal federal income tax bracket today (10%, 12%, 22%, 24%, 32%, 35%, or 37%).
- Set your expected retirement tax rate: If you expect lower income in retirement, use a lower rate. If you expect higher income (or rates to rise), use higher.
- Choose your expected annual return: 6–8% is a reasonable estimate for a diversified portfolio. The calculator applies this to both accounts equally.
- Set years to retirement: The longer your horizon, the more powerful Roth's tax-free compounding becomes.
- Compare results: The calculator shows the after-tax retirement value of both accounts — pick the one that leaves you with more.
2024 IRS Contribution Limits
Under Age 50
$7,000
Age 50 or Older
$8,000
Deadline
April 15
*Note: Limits are subject to income phase-outs for Roth IRA. Consult a tax professional for personal advice.
Advantages of a Roth IRA
- Tax-Free Growth: Your investments grow completely tax-free. Unlike a Traditional IRA where withdrawals are taxed, Roth IRA qualified withdrawals are 100% tax-free in retirement.
- No RMDs — Ever: Roth IRAs have no Required Minimum Distributions during your lifetime. You can let the money grow for decades and pass it on to heirs tax-free.
- Flexible Withdrawals: You can withdraw your original contributions (not earnings) at any time without penalty or taxes — making it a flexible emergency backstop unlike other retirement accounts.
- Tax Diversification: Having both a Roth and Traditional account gives you flexibility in retirement to manage your taxable income each year, potentially lowering your lifetime tax bill.