Roth vs Traditional IRA Calculator

Strip every other complication away. The choice between Roth and Traditional comes down to a single comparison: your current marginal tax rate versus your expected retirement tax rate. Pay tax when the rate is lower. That's it. That's the whole game.

The proof in algebra

Imagine you have $100 of pre-tax income. With Roth, you pay tax on the $100 today at your current rate r_now and deposit the rest, which grows by a factor g over time. Final wealth: 100 × (1 − r_now) × g. With Traditional, you deposit the full $100, it grows by g, then you pay tax at retirement rate r_later on withdrawal. Final wealth: 100 × g × (1 − r_later). These are the same product just rearranged. Roth wins exactly when r_now < r_later. Traditional wins when r_now > r_later. Tie when they're equal.

Investment return doesn't enter the comparison. Time horizon doesn't enter the comparison. Contribution amount doesn't enter the comparison. Only the tax rate differential matters.

Why the calculator above shows different numbers

Two complications. First, the IRS lets you contribute the same dollar amount to Roth or Traditional — not the same pre-taxamount. $7,000 of Roth is post-tax money; $7,000 of Traditional is pre-tax. To compare apples to apples, you have to invest Traditional's tax savings ($7,000 × your current rate) in a side account, because that's where those dollars actually go if you don't consume them.

Second, the side account is taxable. Dividends and capital gains are taxed during accumulation. The calculator simplifies by applying only the long-term capital gains rate at withdrawal, but the takeaway is the same: the side account doesn't grow as efficiently as the IRA itself, which gives Roth an edge that wouldn't exist in pure algebraic comparison.

The practical decision tree

Current rate < expected retirement rate → Roth. Most common for young workers in low brackets and people expecting significant retirement income from pensions or large balances.

Current rate > expected retirement rate → Traditional. Most common for peak earners (typically late-40s to early-60s) who expect to spend less in retirement.

Current rate ≈ expected retirement rate → close call. Roth has small advantages (no RMDs, LTCG-free withdrawals for heirs, tax diversification) that often tip the balance. Many planners default to Roth in this zone.

Try this experiment on any "free Roth vs Traditional calculator" you can find online. Set current rate = retirement rate = 22%. Set contribution = $7,000 for 30 years at 7%. Most calculators will show the two accounts ending up with the same balance — and often conclude "they're a tie." That's the giveaway. They're comparing the wrong numbers.

The error: comparing pre-tax to post-tax dollars

$7,000 in a Roth and $7,000 in a Traditional aren't comparable. The Roth $7,000 was earned, taxed (paying $1,540 at 22%), and the rest deposited — so the user contributed $8,540 of pre-tax income to get $7,000 into Roth. The Traditional $7,000 was earned, fully deposited (no tax taken), so the user contributed exactly $7,000 of pre-tax income. The Roth saver had to give up $1,540 of spendabledollars that the Traditional saver didn't. Most calculators ignore this.

The honest comparison

To compare apples to apples, you have to model what happens to Traditional's $1,540 tax savings each year. Two paths:

• Path A: consumed.The Traditional saver spends the $1,540 each year on lifestyle. In this case, Roth wins automatically because the Roth saver had to forgo that $1,540 to fund the contribution. The Traditional saver got 30 years of additional lifestyle from the tax savings; the Roth saver got 30 years of tax-free retirement growth instead. They're both fine outcomes, but they're not comparable on the spreadsheet.
• Path B: invested in a taxable side account. The Traditional saver invests the $1,540 each year in a brokerage account, where it grows but pays LTCG on the gains when withdrawn. This is the comparison the calculator above runs. It's honest because it preserves equal lifestyle spending — both savers gave up exactly the same out-of-pocket dollars.

The implication

In Path B, even when current rate equals retirement rate, Roth has a small advantage because the side account's LTCG tax drag erodes Traditional's wealth slightly. The advantage grows as the LTCG rate rises and as the time horizon lengthens. For a young saver in a long time horizon facing 15% LTCG, Roth beats Traditional by a few percent even when retirement rate equals current rate. That nuance is invisible in calculators that don't model the side account.

What this means for your decision

If you're likely to consume Traditional's tax savings (most people do — that's the whole point of pre-tax contributions in practice), then Roth wins more often than the honest math suggests. The pre-tax / post-tax framing gives Traditional an artificial mathematical edge that doesn't survive contact with real behavior. Use the calculator above as your floor estimate; if you suspect you'd spend the tax savings, lean toward Roth.

A W-2 employee with a 401(k) has a high contribution ceiling ($23,000 in 2024, $30,500 with catch-up). A 1099 worker without a 401(k) is stuck with the IRA at $7,000. That gap matters: by the time a self-employed earner is making $100K+ of net SE income, the IRA covers only 7% of gross — meaningfully below the 10–15% retirement-savings rule of thumb. The Solo 401(k) and SEP-IRA exist specifically to close this gap for self-employed workers.

Solo 401(k): the usual winner

Designed for self-employed workers with no employees (or just a spouse). Contribution limit in 2024: $69,000 combined (employee + employer), $76,500 with catch-up at age 50+. You contribute as both employee ($23,000 elective deferral, same as W-2 limit) and employer (25% of net SE income up to the difference). Result: a self-employed worker with $100K of net SE income can contribute about $36,500/year. With $200K of net SE income, the full $69,000 max is reachable.

Most major brokerages (Fidelity, Charles Schwab, Vanguard, E-Trade) offer free Solo 401(k) accounts. Look for ones that include a Roth option — many do. The Roth Solo 401(k) is identical in tax treatment to a Roth IRA but without the income limit. High-earning freelancers who can't contribute to a Roth IRA can still contribute to a Roth Solo 401(k).

SEP-IRA: simpler but limited

Easier administratively — no annual filing if you're sole proprietor — but the contribution formula caps at 25% of net SE income up to $69,000. For low-to-moderate earners ($30K–$80K of net SE income), the SEP-IRA contribution is meaningfully lower than the Solo 401(k). At high incomes ($200K+), the two converge.

Major limitation: SEP-IRA exists only in Traditional form. There's no Roth SEP-IRA (as of 2024). If you want Roth treatment of self-employed retirement savings, you need a Solo 401(k) with a Roth option.

The Roth-vs-Traditional decision for self-employed savers

The same math applies — current rate vs expected retirement rate. But there's a specific freelancer-flavored complication: your taxable income varies year to year. A freelancer making $200K this year and $80K next year might want Traditional in the high year (to capture the 32% bracket deduction) and Roth in the low year (when the 12% bracket makes Roth cheap). Many Solo 401(k) plans let you split contributions between Roth and Traditional within a single year, which is the optimal lever for variable-income earners.

The contribution discipline that works for irregular income

Don't commit to a monthly contribution amount you might miss in slow months. Instead, fund the Solo 401(k) annually after you know your net SE income for the year. Year-end deadline for the employee portion is December 31; the employer portion can wait until your tax filing deadline (usually April 15, October 15 with extension). That structural flexibility suits irregular income better than the rigid biweekly cadence of a W-2 401(k).

Roth IRA contributions phase out at higher incomes. For 2024:

• Single filer: full $7,000 contribution allowed up to $146,000 modified AGI. Phases out between $146,000 and $161,000. No contribution allowed above $161,000.
• Married filing jointly: full contribution up to $230,000 MAGI. Phases out between $230,000 and $240,000. No contribution above $240,000.
• Married filing separately: brutal — phase-out starts at $0 and ends at $10,000. Effectively no Roth IRA access for MFS filers in practice.

What's "modified AGI"

MAGI for Roth purposes is your regular AGI with a handful of items added back: student loan interest deduction, IRA contributions deduction, foreign earned income exclusion, etc. For most filers it's identical to AGI. If you're close to the threshold, the exact items matter — check IRS Publication 590-A for the calculation.

The Traditional IRA has different limits

Traditional IRA contributions are always allowed regardless of income, but the deductibility phases out if you (or your spouse) are covered by a workplace retirement plan. 2024 deduction phase-out for single covered by workplace plan: $77,000–$87,000 MAGI. MFJ where the contributor is covered: $123,000–$143,000. MFJ where the spouse is covered but not the contributor: $230,000–$240,000.

Above the deduction phase-out, you can still contribute to a Traditional IRA — but it becomes a "non-deductible" contribution (after-tax basis). This is functionally inferior to a Roth IRA — same after-tax contribution amount, but earnings get taxed at withdrawal vs Roth's tax-free treatment. Hence the "backdoor Roth" strategy described next.

Workplace plan rules are separate

The income limits above apply only to IRAs. 401(k), 403(b), and Solo 401(k) plans have no income limits on contributions. A high-earning freelancer who can't contribute to a Roth IRA can still max out a Roth Solo 401(k) without restriction. This is one of the underrated advantages of self-employed retirement plans: no income limits anywhere.

The annual reset

These limits are checked annually based on the tax year's MAGI. A high-income year that blocks Roth contributions doesn't affect future years — if your income drops, Roth contributions re-open the following year. You can also wait until you know your MAGI in early next-year to contribute for the prior tax year (contributions for tax year 2024 can be made through April 15, 2025).

The "backdoor Roth" is a two-step transaction that lets high earners get money into a Roth IRA even when they're above the income limit for direct contributions. Step 1: contribute $7,000 (2024) to a non-deductible Traditional IRA — no income limit applies. Step 2: convert that Traditional IRA balance to Roth — no income limit on conversions. Net result: $7,000 of contribution into a Roth IRA, achieved indirectly.

Why it works

The non-deductible Traditional contribution is post-tax money (you didn't take a deduction). When you convert to Roth, only the gains on that money are taxed at ordinary rates — which is typically zero if you convert immediately, since there's been no time to accumulate gains. The IRS permitted this in 2010 when income limits on Roth conversions were removed, and Congress has since codified it as a legitimate strategy.

The pro-rata rule (the gotcha)

Here's where backdoor Roths usually go wrong. The IRS treats all your Traditional IRA balances as one big pool when computing conversion taxes. If you have $50,000 in a pre-tax Traditional IRA (from old rollovers, deductible contributions, etc.) and you add $7,000 of non-deductible money and try to convert that $7,000, the IRS taxes 50,000 / 57,000 = 88% of the conversion as if it were the pre-tax money. Result: you owe income tax on $6,140 of the $7,000 conversion. The pro-rata rule turns a tax-free maneuver into an expensive one if you have existing pre-tax IRA balances.

The fix: roll pre-tax IRAs into a 401(k) first

401(k) and Solo 401(k) accounts are NOT counted in the pro-rata rule. If you can roll your existing Traditional IRA balances into a 401(k) before doing the backdoor Roth, you eliminate the pro-rata problem. Most workplace 401(k) plans accept Traditional IRA rollovers. Once your Traditional IRA balance is $0 (other than the brand-new non-deductible $7,000), the backdoor Roth converts cleanly with essentially no tax owed.

Mega backdoor Roth (for Solo 401(k) users)

Advanced version: some Solo 401(k) plans allow after-tax contributions beyond the $23,000 employee deferral limit, up to the overall $69,000 combined limit. Those after-tax dollars can then be in-plan converted to Roth, effectively letting high-earning self-employed workers contribute $40,000+ to Roth annually — far above the IRA limits. Requires a Solo 401(k) plan that supports both after-tax contributions and in-plan Roth conversions; not all do (Vanguard, for instance, does not).

Step-by-step backdoor Roth process

1. Verify your Traditional IRA balance is $0 (or roll existing balances into a 401(k) first).
2. Open a Traditional IRA if you don't have one. Most brokerages do this online in 5 minutes.
3. Contribute $7,000 (2024 limit, or current-year limit). Mark it as a non-deductible contribution on Form 8606 when you file taxes.
4. Wait a few days for the contribution to settle, then convert the entire balance to Roth. Most brokerages have a "convert to Roth" button on the Traditional IRA account page.
5. File Form 8606 reporting the non-deductible contribution basis. Skip this and the IRS will assume the conversion was fully taxable.