This calculator helps you estimate which type of IRA (Roth or Traditional) might be more beneficial for you, based on your current and expected future tax rates.
Estimated Benefit Comparison
Please enter your details above and click "Calculate Benefit".
Understanding Roth vs. Traditional IRAs
Choosing between a Roth IRA and a Traditional IRA is a significant financial decision that hinges on your current and anticipated future tax situations. Both offer tax advantages for retirement savings, but they differ fundamentally in when you receive the tax break.
Traditional IRA
Contributions to a Traditional IRA may be tax-deductible in the year you make them, lowering your current taxable income. This means you get a tax break now. Your money grows tax-deferred, meaning you don't pay taxes on the earnings each year. However, when you withdraw the money in retirement, both your contributions (if deducted) and the earnings are taxed as ordinary income.
Best for: Individuals who expect to be in a lower tax bracket in retirement than they are now, or who want the immediate tax benefit to reduce their current tax bill.
Roth IRA
Contributions to a Roth IRA are made with money you've already paid taxes on (after-tax dollars). There's no upfront tax deduction. The major advantage is that your qualified withdrawals in retirement, including all the earnings, are completely tax-free. This provides tax certainty for your future income stream.
Best for: Individuals who expect to be in a higher tax bracket in retirement than they are now, or who prefer tax-free income in retirement and are willing to pay taxes on their contributions today.
How the Calculator Works
This calculator provides an estimated comparison based on several key assumptions:
Current vs. Future Tax Brackets: It compares your current tax rate to your expected future tax rate. If you expect your future rate to be higher, a Roth IRA is often more advantageous. If you expect it to be lower, a Traditional IRA might be better.
Tax Savings on Contributions (Traditional IRA): It calculates the immediate tax savings you'd get from deducting contributions to a Traditional IRA.
Taxes Paid on Withdrawals (Traditional IRA): It estimates the total taxes you'd pay on withdrawals in retirement from a Traditional IRA, based on your expected future tax rate.
Tax-Free Withdrawals (Roth IRA): It assumes all withdrawals from a Roth IRA in retirement are tax-free.
Investment Growth: It uses a compound annual growth rate to project the future value of your investments in both scenarios.
The calculator aims to estimate the total "after-tax" value of your retirement savings from each type of account by the time you retire. The account projected to have a higher after-tax value is generally considered more beneficial.
Key Factors to Consider:
Income Eligibility: Roth IRAs have income limitations for direct contributions. Traditional IRAs do not, but deductibility may be limited based on income and workplace retirement plan coverage.
Tax Rate Uncertainty: Predicting future tax rates is difficult. If tax rates are expected to rise generally, a Roth IRA offers greater protection against future tax increases.
Need for Current Tax Deduction: If reducing your current tax bill is a high priority, a Traditional IRA might be preferred.
Estate Planning: Roth IRAs can have advantages for heirs as they are typically inherited tax-free.
Disclaimer: This calculator provides an estimation for educational purposes only and does not constitute financial advice. Consult with a qualified financial advisor or tax professional to discuss your specific situation and make informed decisions.
function calculateIRABenefit() {
var currentIncome = parseFloat(document.getElementById("currentIncome").value);
var expectedFutureIncome = parseFloat(document.getElementById("expectedFutureIncome").value);
var currentTaxRate = parseFloat(document.getElementById("currentTaxRate").value) / 100;
var expectedFutureTaxRate = parseFloat(document.getElementById("expectedFutureTaxRate").value) / 100;
var annualContribution = parseFloat(document.getElementById("annualContribution").value);
var yearsToRetirement = parseFloat(document.getElementById("yearsToRetirement").value);
var investmentGrowthRate = parseFloat(document.getElementById("investmentGrowthRate").value) / 100;
var resultElement = document.getElementById("calculationResult");
resultElement.innerHTML = ""; // Clear previous results
// Input validation
if (isNaN(currentIncome) || isNaN(expectedFutureIncome) || isNaN(currentTaxRate) || isNaN(expectedFutureTaxRate) || isNaN(annualContribution) || isNaN(yearsToRetirement) || isNaN(investmentGrowthRate) ||
currentIncome < 0 || expectedFutureIncome < 0 || currentTaxRate < 0 || expectedFutureTaxRate < 0 || annualContribution < 0 || yearsToRetirement <= 0 || investmentGrowthRate < 0) {
resultElement.innerHTML = "Please enter valid positive numbers for all fields. Years to Retirement must be greater than 0.";
return;
}
// — Calculations —
// 1. Traditional IRA Calculation
// Immediate Tax Savings (if contribution is deductible)
var traditionalTaxSavingsNow = annualContribution * currentTaxRate;
// Future Value of Contributions + Growth (before taxes in retirement)
// Using compound interest formula: FV = P * (1 + r)^n
var futureValueTraditional = annualContribution * (Math.pow(1 + investmentGrowthRate, yearsToRetirement));
// Taxes paid in retirement on Traditional IRA withdrawals
var taxesInRetirementTraditional = futureValueTraditional * expectedFutureTaxRate;
// Net After-Tax Value of Traditional IRA in Retirement
var netAfterTaxValueTraditional = futureValueTraditional – taxesInRetirementTraditional;
// 2. Roth IRA Calculation
// Contributions are after-tax, so no immediate tax saving.
var rothTaxSavingsNow = 0;
// Future Value of Contributions + Growth (all tax-free in retirement)
var futureValueRoth = annualContribution * (Math.pow(1 + investmentGrowthRate, yearsToRetirement));
// Net After-Tax Value of Roth IRA in Retirement (since withdrawals are tax-free)
var netAfterTaxValueRoth = futureValueRoth;
// — Determine which is better —
var comparisonText = "";
var overallBenefit = 0;
if (netAfterTaxValueRoth > netAfterTaxValueTraditional) {
overallBenefit = netAfterTaxValueRoth – netAfterTaxValueTraditional;
comparisonText = "A Roth IRA appears to be more beneficial by an estimated $" + overallBenefit.toFixed(2) + " (after-tax value).";
} else if (netAfterTaxValueTraditional > netAfterTaxValueRoth) {
overallBenefit = netAfterTaxValueTraditional – netAfterTaxValueRoth;
comparisonText = "A Traditional IRA appears to be more beneficial by an estimated $" + overallBenefit.toFixed(2) + " (after-tax value).";
} else {
comparisonText = "Both Roth and Traditional IRAs appear to provide a similar after-tax benefit based on your inputs.";
}
// — Display Results —
var resultHTML = "Estimated Total After-Tax Value in Retirement:";
resultHTML += "Roth IRA:$" + netAfterTaxValueRoth.toFixed(2) + "";
resultHTML += "Traditional IRA:$" + netAfterTaxValueTraditional.toFixed(2) + "";
resultHTML += "" + comparisonText + "";
resultElement.innerHTML = resultHTML;
}