- The decision is a bet on one number — whether your marginal rate at withdrawal is higher or lower than it is today. Nothing else about the two accounts differs.
- A comparison that does not hold the cost today constant is rigged toward Roth, because the Roth saver is quietly contributing more take-home money for the same headline figure.
- At equal current and retirement marginal rates the two are mathematically identical. The small Roth edge shown here is tax on the side account’s growth, not a property of the account.
- You do not have to pick one. Most plans allow both, and splitting hedges the rate you cannot forecast — which is the honest position on a 25-year guess.
How the Roth vs traditional calculator works
The choice between a traditional account and a Roth is a bet on exactly one number: whether your marginal tax rate when you withdraw the money is higher or lower than it is today. A traditional contribution is deducted now and taxed on the way out. A Roth contribution is taxed now and comes out untaxed. Everything else — the investments, the return they earn, the annual limit — is the same in both.
Most calculators get this wrong in the same direction. They compare the traditional balance minus the retirement tax against the full Roth balance, and Roth wins almost every time. That result is an artifact of the question rather than a finding. An $8,000 traditional contribution costs someone in the 22% bracket $6,240 of take-home pay, because the deduction hands $1,760 back. The same $8,000 into a Roth costs the full $8,000. The naive comparison quietly has the Roth saver putting more of their own money in, then reports back that they ended up with more.
This one holds the cost today constant instead. The traditional saver contributes the same headline amount and invests the tax they did not pay in an ordinary taxable account alongside it, so both routes cost identical take-home pay. On that basis the two are exactly equal when the current and retirement marginal rates are equal — which is the real finance result, and the reason the whole decision rests on the rate change and not on the account.
The math
Both accounts hold one contribution and compound it at the return you set for the number of years you set. A single contribution rather than a stream is deliberate: the comparison scales linearly, so the ratio between the two routes is the same either way, and one contribution makes the arithmetic visible in the table.
The traditional balance is taxed once, at your retirement marginal rate, when it comes out. The Roth balance is not taxed at all. Both marginal rates are read off the federal ordinary brackets after the standard deduction for your filing status — the current rate at the income you enter now, the retirement rate at the ordinary income you expect in the year you withdraw. The side account holds the contribution times your current marginal rate, grows at the same return, and is taxed at the long-term capital-gains rate you pick, on its growth only. Its principal has already been taxed.
That side-account treatment is the friendliest one available: it assumes a single sale at the end, with no dividends, no rebalancing and no realized gains along the way. Even so it costs something, which is why the two routes are not quite level at equal rates unless you set the capital-gains rate to 0%. At 0% the numbers land on each other to the dollar. At 15% the Roth edges ahead, because the Roth shelters all of the money while the traditional route shelters only part of it. That drag is real, and it is small next to a rate change of a few points in either direction.
Worked example
On the defaults — one $8,000 contribution, $110,000 of income now, $80,000 in retirement, 25 years at 7%, capital gains at 15%, filing single — both marginal rates come out at 22%. The contribution grows to $43,419 before tax. The traditional route keeps $33,867 after the withdrawal is taxed, plus $8,383 from the side account, for $42,251. The Roth keeps $43,419. Roth is ahead by $1,169, and every dollar of that gap is the capital-gains tax on the side account. Set the capital-gains pill to 0% and both columns read $43,419 exactly.
Now drop the retirement income to $40,000. That moves the retirement marginal rate to 12%, the traditional withdrawal keeps $38,209 instead of $33,867, and traditional finishes about $3,173 ahead. A ten-point change in the retirement rate swung the answer by roughly $4,300 on a $43,000 pot; the capital-gains treatment moved it by $1,169. That ordering is the point: the rate change dominates.
Key terms
- Marginal rate
- The rate applied to your next dollar of ordinary income, not the average rate you pay overall. This is the rate a deduction saves you and the rate a withdrawal costs you.
- Traditional (pre-tax)
- A contribution deducted from income now, growing untaxed, and taxed as ordinary income when withdrawn. The tax is deferred, not forgiven.
- Roth (after-tax)
- A contribution made from money already taxed, growing untaxed, and withdrawn untaxed once the account’s holding conditions are met.
- Side account
- An ordinary taxable account holding the tax the traditional deduction saved. It is what makes the two routes cost the same today, and it is taxed on its growth.