Question 1

Should I choose a Roth or Traditional IRA/401(k)?

Accepted Answer

The core question is your tax rate now versus in retirement. A Traditional account deducts your contribution today and is taxed when you withdraw, so it wins if your tax rate will be lower in retirement. A Roth is funded with after-tax dollars and grows and withdraws tax-free, so it wins if your rate is the same or higher later. Because Roth shelters all the growth (while a Traditional's tax refund, if invested, gets taxed), Roth often has a slight edge even at equal rates.

Question 2

How is the comparison calculated?

Accepted Answer

This grows the same contribution in each account. Roth's after-tax value is the contribution times growth, with no tax due. Traditional's value is the contribution times growth taxed at your retirement rate, PLUS a side taxable account funded by the upfront tax deduction (with its gains taxed at the retirement rate). It then compares the two after-tax totals. Tax rates and returns are assumptions, not predictions — try a few.

Roth vs. Traditional Calculator