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Traditional Vs Roth Contribution Calculator

Compares a traditional and a Roth contribution of the same size by growing each forward and taxing it on the rules that apply to it, so the two are judged on what you keep rather than on what goes in. It reports which comes out ahead and the future tax rate at which they are equal, and it can invest the traditional contribution's up-front tax saving in a taxable side account, which is the comparison most calculators leave out.

Last updated
Decision Canvas

Calculator overview

Inputs and outputs

This summary comes from the calculator's published input and output contract.

Inputs

Annual Contribution (required)
About this input

The amount you are deciding how to save, stated before tax. On the equal-contribution basis this same gross amount goes in either way.

Unit currency/yr Default 7000 Range At least 0
Comparison Basis (required)
About this input

Equal contribution puts the same gross amount into each route. Equal cost recognises that going traditional leaves the deferred tax in your hands and invests it in a taxable side account, which is the fairer comparison and the one most tools omit.

Default Equal contribution Allowed Equal contribution, Equal cost, investing the tax saving
Expected Return (required)
About this input

The average annual return you expect, expressed as a percentage. Like the period, it cannot change the winner on the equal-contribution basis.

Unit fraction Default 0.06 Range 0 to 0.25
Marginal Tax Rate Now (required)
About this input

The rate you would pay on this money if you took it as salary today. It is the rate the traditional route defers and the Roth route pays.

Unit fraction Default 0.24 Range 0 to 0.6
Side Account Tax Rate
When omitted Blank
About this input

Optional, and read only on the equal-cost basis: the rate at which the side account's GAIN is taxed when you draw it. Leave it blank on the equal-contribution basis; leave it blank on the equal-cost basis and the growth is treated as untaxed, which the status line warns about.

Unit fraction Default Not set Range 0 to 0.6
Tax Rate In Retirement (required)
About this input

The rate you expect to pay when you withdraw. It is the single most uncertain input here, which is why the calculator reports the break-even rate rather than only one answer.

Unit fraction Default 0.22 Range 0 to 0.6
Years To Retirement (required)
About this input

How long the money stays invested before you draw it. On the equal-contribution basis it cannot change which route wins, only by how much.

Unit years Default 25 Range 0 to 60

Outputs

Advantage Of Traditional
About this output

Traditional less Roth. Positive means traditional keeps more on these assumptions; negative means Roth does.

Unit currency
Better Option
About this output

Which route comes out ahead, stated in words, with the assumptions it depends on.

No unit declared
Break Even Tax Rate
About this output

The retirement tax rate at which the two routes keep exactly the same amount. Expect a higher rate than this and Roth wins; expect lower and traditional does.

Unit fraction
Growth Multiple
About this output

What one unit of money grows to over the period. Both routes share it, which is why it cancels on the equal-contribution basis.

Unit ratio
Model Status
About this output

Reads OK, or explains why the inputs are not valid or why the answer deserves a second look.

No unit declared
Roth After Tax
About this output

What you keep from the Roth route. Nothing is deducted at the end.

Unit currency
Roth Amount Invested
About this output

What actually reaches the Roth account: the contribution less today's tax. It is smaller than the traditional contribution, and that is the trade.

Unit currency
Side Account After Tax Value
About this output

The taxable account holding the deferred tax, after tax on its gain. Zero unless the equal-cost basis is selected.

Unit currency
Tax Saved Today
About this output

The tax the traditional route defers this year. On the equal-cost basis this is the money that funds the side account.

Unit currency
Traditional After Tax
About this output

What you keep from the traditional route, including the side account on the equal-cost basis.

Unit currency
Traditional Before Tax
About this output

The traditional balance at retirement, before any tax is taken.

Unit currency
Traditional Tax On Exit
About this output

Tax due when that balance is withdrawn, at the retirement rate.

Unit currency
This page is provided by LogicCommons for informational purposes only. Results are model outputs computed from the inputs you supply and are not financial, investment, tax, accounting, or legal advice, and no advisory relationship is created. Verify all inputs and results independently before relying on them in any decision.

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Methodology

Purpose and model boundary

Use this calculator to compare traditional and Roth contributions by the amount left after tax at retirement. It reports which route is ahead, the size of the difference, and the future tax rate at which the routes are equal. You can compare equal contributions or equal out-of-pocket cost with the traditional tax saving invested separately.

The comparison uses flat tax rates. It excludes tax brackets, deduction phase-outs, Roth income-eligibility limits, employer-match treatment and required minimum distributions.

Inputs and units

Input Unit Accepted range What it means
Side Account Tax Rate percentage 0–60% Optional and used only on the equal-cost basis: the tax percentage applied to the side account's gain when withdrawn. If left blank on that basis, growth is treated as untaxed and the status warns you.
Tax Rate In Retirement percentage 0–60% The tax percentage you expect when you withdraw. Because it is uncertain, the calculator reports a break-even rate as well as the comparison result.
Years To Retirement years 0 to 60 How long the money stays invested before you draw it. On the equal-contribution basis it cannot change which route wins, only by how much.
Marginal Tax Rate Now percentage 0–60% The tax percentage you would pay if you took this money as salary today. The traditional route defers it; the Roth route pays it now.
Annual Contribution $/year 0 or more The amount you are deciding how to save, stated before tax. On the equal-contribution basis this same gross amount goes in either way.
Comparison Basis Equal contribution; Equal cost, investing the tax saving Equal contribution puts the same gross amount into each route. Equal cost recognises that going traditional leaves the deferred tax in your hands and invests it in a taxable side account, which is the fairer comparison and the one most tools omit.
Expected Return percentage 0–25% The average annual return you expect. Like the period, it does not change the winner on the equal-contribution basis.

Governing relationships

On the equal-contribution basis, traditional after-tax value is C (1 + r)^n (1 - t_retirement) and Roth value is C (1 - t_now) (1 + r)^n. They are equal when t_retirement = t_now; contribution, return and term cancel from that comparison. On the equal-cost basis, the current tax saving C t_now is invested in a side account at the same return, with tax applied only to that account's gain.

Calculation sequence

  1. Read the annual contribution, the comparison basis, the years to retirement, the marginal tax rate now, the retirement tax rate, the side-account tax rate and the expected return.
  2. Grow the traditional contribution at the expected return and apply the retirement tax rate to the whole balance at withdrawal.
  3. Reduce the Roth contribution by the current marginal rate, grow the remainder at the same return, and apply no tax at withdrawal.
  4. On the equal-cost basis, grow the tax deferred by the traditional route in a side account at the same return, and tax only its gain at the side-account rate.
  5. Add the side account to the traditional route where that basis is selected.
  6. Subtract the two routes to get the advantage, and report which comes out ahead.
  7. Solve for the retirement tax rate at which the two are equal, which on the equal-amount basis is the current marginal rate.
  8. Evaluate the status in the order given below.

Outputs and interpretation

The headline figures are Break Even Tax Rate, Better Option and Advantage Of Traditional. Everything else is supporting detail for those.

Output Role Unit What it means
Break Even Tax Rate headline percentage The retirement tax percentage at which both routes keep the same amount. Above it Roth wins on these assumptions; below it traditional wins.
Better Option headline Which route comes out ahead, stated in words, with the assumptions it depends on.
Advantage Of Traditional headline $ Traditional less Roth. Positive means traditional keeps more on these assumptions; negative means Roth does.
Tax Saved Today detail $ The tax the traditional route defers this year. On the equal-cost basis this is the money that funds the side account.
Side Account After Tax Value detail $ The taxable account holding the deferred tax, after tax on its gain. Zero unless the equal-cost basis is selected.
Roth Amount Invested detail $ What actually reaches the Roth account: the contribution less today's tax. It is smaller than the traditional contribution, and that is the trade.
Traditional Tax On Exit detail $ Tax due when that balance is withdrawn, at the retirement rate.
Traditional Before Tax detail $ The traditional balance at retirement, before any tax is taken.
Traditional After Tax detail $ What you keep from the traditional route, including the side account on the equal-cost basis.
Roth After Tax detail $ What you keep from the Roth route. Nothing is deducted at the end.
Growth Multiple detail ratio What one unit of money grows to over the period. Both routes share it, which is why it cancels on the equal-contribution basis.

Validation and status logic

The workbook evaluates status in this order, and the first condition that is true wins. The status text below is the exact wording the workbook returns; angle brackets mark a value substituted into the message at calculation time.

Condition Returned status
Annual Contribution <= 0 NOT VALID: there is nothing to contribute
Years To Retirement < 0 NOT VALID: the period cannot be negative
OR(Marginal Tax Rate Now < 0,Marginal Tax Rate Now >= 1) NOT VALID: the marginal tax rate today must be at least 0% and less than 100%
OR(Tax Rate In Retirement < 0,Tax Rate In Retirement >= 1) NOT VALID: the retirement tax rate must be at least 0% and less than 100%
Expected Return < 0 NOT VALID: the expected return cannot be negative
AND(Equal-cost basis selected? = 1,Side Account Tax Rate = "") CHECK: the equal-cost basis is selected but no side-account tax rate is given, so its growth is being treated as untaxed
ABS(Advantage Of Traditional) <= 0.005 CHECK: the two routes come out equal on these assumptions
None of the preceding conditions applies OK

Assumptions and limitations

  • Tax rates are single flat rates. Bracket effects, deduction phase-outs and Roth income eligibility limits are not modelled.
  • On the equal-amount basis the two routes cost you different amounts today, because the traditional contribution is deductible. The equal-cost basis exists to correct for that, and the choice of basis changes the answer.
  • The same return applies to both routes over the same period.
  • Employer match treatment, contribution limits and required minimum distributions on the traditional balance are outside the model.

Restrictions and non-computing states

The annual contribution must be greater than zero. Tax rates cannot be negative and are held within their published ranges, as are the expected return and the years to retirement. Contribution limits and Roth income eligibility are not applied. Selecting the equal-cost basis without a side-account tax rate treats the side account's growth as untaxed, which favours the traditional route, and the workbook reports that rather than assuming a rate.

Errors and warnings

A rejected entry means a value fell outside the published input rules, and no calculation was attempted. Workbook NOT VALID means the model ran and could not produce a meaningful answer, so the results are withheld. Workbook CHECK means the numbers stand but a condition is worth reading before you rely on them. A connection or calculation-service failure is an availability problem, not a finding of any kind, and never means zero.

References

The tax treatment of traditional and Roth contributions is set by the Internal Revenue Service; see the Roth comparison chart and Publication 590-A, Contributions to Individual Retirement Arrangements. The workbook reproduces no statutory table, threshold or limit: the tax rates are editable inputs and the comparison is derived in the delivered audit.

This model is arithmetic. It is not financial, tax, investment or retirement advice, and it is not a recommendation to save, invest, withdraw, claim or accept any amount. Decisions about retirement funding should be taken with a qualified professional who knows your circumstances.

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