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Roth vs Traditional IRA: The One Number That Decides It

Published · 2 min read

Forget the debates. The Roth vs Traditional decision comes down to one number — your tax rate now versus later. Here is the maths that settles it.

Every Roth vs Traditional argument online turns into a political fight. It is not politics — it is one comparison: your marginal tax rate today against your marginal tax rate when you withdraw.

Whoever has the lower rate wins. Everything else is noise.

The mechanics, in one table

Traditional IRA Roth IRA
Contribution Pre-tax, deducted now After-tax, no deduction
Growth Tax-deferred Tax-free
Withdrawal Taxed as ordinary income Tax-free after 59½ and 5 years
RMDs Required from 73 None

Why growth does not decide it

The most common myth is that Roth wins because growth is tax-free. It does not work that way, because the Traditional route started with more money.

Invest $5,000 pre-tax in a Traditional IRA, double it: $10,000, taxed at 22% on withdrawal = $7,800 net. Invest $3,900 after-tax in a Roth IRA (the same $5,000 paycheck after 22% tax), double it: $7,800 = $7,800 net.

Identical. The rate is the entire decision.

Where the tie breaks

  • You expect higher taxes later (higher future income, higher rates, big RMDs): Roth wins.
  • You expect lower taxes later (early retirement, no mortgage, lower spending): Traditional wins.
  • You are in the 12% bracket now: Roth is usually the easy answer, because rates have little room to fall.
  • You are in the 32% bracket now: Traditional is usually the easy answer, because you can fill lower brackets in retirement.

Roth vs Traditional IRA Calculator — Same dollars, two tax treatments. See your after-tax spendable balance at retirement under each account.

The break-even rate

The calculator gives you the one number worth writing down: the future tax rate at which both accounts tie. If you believe your retirement rate will land below it, go Traditional. Above it, go Roth.

For most people in the 22-24% bracket who plan to spend less in retirement, the break-even sits around 22%. That is close enough that the honest answer is often "either one, as long as you invest it".

What actually matters more than the choice

  1. Contributing every year — the limit is per year, not per lifetime.
  2. Investing the money instead of leaving it in cash.
  3. The employer match (see the 401(k) calculator).

Run both sides with your own rate: Roth vs Traditional IRA calculator.

Use these tools to get started

  • Roth vs Traditional IRA Calculator — Same dollars, two tax treatments. See your after-tax spendable balance at retirement under each account. (Free)
  • 401(k) Calculator — Project your balance with employer match — and see the match money you're leaving on the table. (Free)

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