balance RETIREMENT TOOLS

Roth vs Traditional IRA

Pay taxes now or later? Find out which account maximizes your retirement income.

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How It Works: Compare Roth and Traditional IRAs to determine which retirement account type maximizes your after-tax wealth based on current vs future tax rates.

Key Differences:
  • Roth IRA: Contribute after-tax dollars now. All withdrawals in retirement are tax-free, including growth.
  • Traditional IRA: Contribute pre-tax dollars (tax deduction now). Pay taxes on all withdrawals in retirement.

Decision Guide: Choose Roth if you expect higher tax rates in retirement (early career, rising income). Choose Traditional if you expect lower tax rates in retirement (peak earning years). The calculator shows which option leaves you with more spendable money.
Roth IRA Value
$450,000
Traditional IRA Value (After Tax)
$480,000

Winner: Traditional IRA

You save $30,000 by choosing this option.

Tax Diversification: Why You Need Both

We all know about diversifying our investments (stocks vs. bonds), but few talk about Tax Diversification. Future tax rates are unknown. By holding both Pre-Tax (Traditional) and Post-Tax (Roth) assets, you give yourself options in retirement.

The "Fill the Bucket" Strategy

In retirement, your Traditional IRA withdrawals count as ordinary income. You want to fill up your low tax brackets (Standard Deduction, 10%, 12%) with this money. Once you hit a higher tax bracket (e.g., 22%), you switch to withdrawing from your Roth IRA, which is tax-free and doesn't increase your taxable income.

RMDs: The Traditional IRA Trap

At age 73 (currently), the IRS forces you to withdraw from your Traditional IRA, whether you need the money or not. These are called Required Minimum Distributions (RMDs).

Roth IRAs have NO RMDs. You can let the money grow tax-free forever and pass it to your heirs tax-free. This makes the Roth a superior vehicle for estate planning.

Disclaimer: Tax laws expire and change. The current low tax rates are set to expire in 2026 unless renewed.