Roth IRA vs Traditional IRA Calculator— Finding the Best Fit For Your Retirement Savings
Are you on track for retirement?
Individual retirement accounts (IRAs) are popular options because they help you invest and grow your retirement savings. But you could generate considerably more retirement income, depending on the type of IRA you choose.
One way to clear away the confusion about buying an IRA is to use the free Roth IRA vs. traditional IRA calculator below. See which route could help your retirement savings go further.
How the Roth IRA vs traditional IRA calculator works
To figure out the estimated growth of your IRA, you’ll need to input some basic details into the calculator: your current age and the age you want to retire.
You'll next have to enter your adjusted gross income and how much you plan to contribute to your IRA each year.
The IRA calculator takes all these figures and instantly reveals your average gains and tax implications. In the bar chart beneath the calculator, you'll see the total rate of return for the Roth IRA and the traditional IRA at your retirement date.
To add more nuance to this report, you can toggle down on the second table that says, "Investment return, taxes, employment and marital status." Here, you can change the estimated growth rate, tax rates, and whether you're single or married.
If you need more details on your results, click the "View Report" button at the top to view the calculations.
Key terms for the Roth IRA vs traditional IRA calculator
Unless you're familiar with retirement terminology, you may encounter a few confusing words when setting up your IRA calculator. It's essential to have a clear understanding of all these terms:
- Adjusted Gross Income (AGI): This is the amount of your taxable annual income. Your AGI is calculated by taking your gross income and subtracting deductions such as student loan interest or retirement plan contributions.
- Annual contribution: This is the amount of money you plan to put into your IRA each year.
- Maximize contributions: If you click this button on the calculator, it'll assume you're contributing the most you could possibly put into your IRA.
- Retirement age: This is the age you want to retire. While the IRS lets you take penalty-free withdrawals any time after 59.5 years old, you could defer this payout date to let your portfolio grow further.
- Required minimum distributions (RMDs): Although you could take money out of a traditional IRA any time after reaching 59.5 years old, the IRS forces you to take RMDs once you reach 73. Here’s how to figure out your RMD.
Understanding Your Results
The first page on Roth IRA vs traditional IRA calculator shows which IRA could help you save more money in the long run. To better understand why one result is higher, click "View Report" and scroll through the other findings.
You can also read through tables of numbers showing your yearly contributions and growth rates, as well as tax savings and payments depending on each IRA's plan.
An example IRA scenario
To illustrate how the Roth IRA vs traditional IRA calculator works, let's say you enter info for a 35-year-old who wants to retire at 65 and contribute the maximum amount each year.
For a realistic prediction, you’d set your average return at the inflation-adjusted rate for the S&P 500 index (currently 6.5%).
Let’s say you also set your adjusted income to $50,000 and include a current tax rate of 24% and an expected retirement tax of 20%.
In this scenario, the Roth IRA has higher total returns than the traditional IRA, $669,679 versus $657,085.
Pros and cons of a Traditional IRA
As a general rule, traditional IRAs are best for people who want to "save now, pay later." A traditional IRA's defining feature is its ax deductions during contributions, which helps you save funds in your peak earning years for taxes on your payouts.
Pros of traditional IRAs
Pros
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Immediate tax deductions: Traditional IRA contributions can get you front-loaded tax deductions. This can lower your immediate tax bill and contribute to your portfolio's tax-deferred growth.
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Rollover options: Traditional IRAs offer flexible rollover options to easily consolidate retirement savings from other accounts, such as a 401(k).
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No income limits: Unlike Roth IRAs, traditional IRAs don't have income limits for opening an account, though deductions and contribution limits differ for high-earners.
Cons
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Withdrawals are taxed: The downside of taking deductions early on is you have to pay money later. The IRS will consider your withdrawals ordinary income and subject to income tax.
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Required minimum deposits: Starting at age 73, you have no choice. You must start taking payouts from your traditional IRA, or you'll end up paying a hefty penalty.
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Limitations on some tax deductions: There are cases where a traditional IRA plan may limit your IRA contributions and deductions. For example, if you have an employer-sponsored retirement plan too, you may lose eligibility for a full or partial deduction.
Pros and cons of a Roth IRA
From a tax perspective, Roth IRAs are the inverse of traditional IRAs. Instead of claiming savings upfront, you get the "payoff" from these IRAs later in life when you enjoy tax-free withdrawals.
Pros of Roth IRAs
Pros
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No taxes on payouts: If you're over 59.5 years old and the account has been open for at least five years, you can withdraw your earnings tax-free in retirement. Avoiding withdrawal taxes can significantly boost your retirement savings.
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No Required Minimum Deposits: Roth IRAs don't have RMDs, unlike traditional IRAs. So, you can leave your money invested and let it grow tax-free for as long as you want. This is ideal for estate planning.
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Flexible withdrawal options: Since Roth IRA contributions are made with after-tax dollars, you can withdraw your contributions without penalties. You could withdraw earnings penalty-free before age 59.5 in some cases: a first-time home purchase, a medical emergency, or qualified education expenses.
Cons
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No tax deductions: You can't deduct contributions on your Roth IRA as you would with a traditional IRA. While Roth IRAs still offer tax-free growth, the upfront cost of contributing after-tax dollars isn't ideal for those in lower tax brackets.
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Income limits for contributions: The IRS sets annual income thresholds for Roth IRAs, meaning people who earn over these limits may be unable to contribute to this plan. These income caps are a disadvantage for high earners who wish to take advantage of a Roth IRA's tax-free growth and retirement withdrawals.
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Potential determined by tax bracket: Roth IRAs don't make financial sense for individuals who expect to pay more in taxes pre-retirement. This IRA has the most value if you expect your post-retirement tax bracket to be more substantial than your contribution years.
Making a choice: Traditional IRA vs a Roth IRA
When choosing between a traditional IRA and a Roth IRA, you have to weigh factors like your tax benefits, income eligibility, and long-term financial goals. But as a general rule,
Traditional IRAs will likely suit you better if you're in a high tax bracket and expect your income to drop in retirement. A Roth IRA doesn't offer an upfront tax deduction, so you have to be reasonably sure you'll be in a higher tax bracket in retirement to take full advantage of these savings.
Some overlooked considerations in your IRA analysis may include liquidity needs, rollover flexibility, and estate planning goals. Traditional IRAs have the option for rollovers from other retirement accounts, which can help consolidate assets. On the flip side, a Roth IRA's lack of RMDs makes it suitable for those who want to leave assets to heirs. Roth IRAs also provide slightly better liquidity because you can withdraw contributions before retirement age.
Consider all these distinctive features and compare them against your tax burden and retirement goals. Tools like the Dinkytown calculator can also help you dive deeper into the numbers and figure out which IRA will reward you with more earnings.
Alternative retirement savings plans
If you're looking for retirement savings beyond Roth and traditional IRAs, you could consider several other plans..
- 401(k)s: 401(k)s are employer-sponsored plans that allow pre-tax or Roth contributions. A few distinguishing factors in a 401(k) versus traditional and Roth IRAs include higher contribution limits and matching contributions from the employer in many cases..
- 401(b)s: Similar to 401(k) plans, 403(b)s are retirement plans for employees, but they're specific to those who work for nonprofits, public schools, and some government jobs. While 403(b)s work almost the same as 401(k)s, they favor mutual funds and annuities as their primary investments.
- SEP IRAs: Short for "Simplified Employee Pension," SEP IRAs are for self-employed individuals or small business owners. They allow for higher, tax-deductible contributions that only come from employers.
- SIMPLE IRAs: Savings Incentive Match Plan for Employees (SIMPLE) IRAs are specifically for small businesses, and they allow for employee and employer contributions slightly lower than 401(k) levels. Although these limits are lower, SIMPLE IRAs tend to be, well, "simpler" to set up. These plans also include required employer matching.
Retirement account providers
There's no need to drive to your local bank to set up an IRA. Sure, you could work with a financial institution to get this account, but there are plenty of straightforward online platforms that let you get started with traditional or Roth IRA investing.
Robinhood
Robinhood is famous for its easy-to-use mobile app and no-fee brokerage accounts, but it also offers a competitive IRA program with its signature commission-free trading.
As a bonus, Robinhood now provides a competitive IRA match program to give you extra help with your contributions. It's an excellent option for anyone looking for a low-cost, high-tech IRA with tempting incentives.
JP Morgan
The storied US bank, JP Morgan Chase, offers a range of IRAs to help you save for retirement. JP Morgan also offers ways to help set up or roll over employer-sponsored accounts like 401(k)s and SIMPLE. Plus, thanks to JP Morgan's reputation in wealth management, there are plenty of options for working with a human advisor.
Thor Metals
Unlike other IRA providers on this list, Thor Metals Group specializes in helping you invest your retirement funds into physical precious metals.
IRA providers in this category create self-directed IRAs to use your contributions to buy IRS-approved gold or silver bars and store them in an approved facility.
So, if you're more interested in the potential advantages of buying bullion rather than bonds, Thor Metals Group may be a solid IRA partner.
Vanguard
Vanguard is well-regarded for its mutual funds and ETFs, and it's also a premier financial institution for retirement planning.
If you'd prefer working with an institution with decades of wealth management experience, Vanguard's portal offers plenty of ways to set up and invest in multiple IRA types.
Vanguard also offers multiple robo-advisory and human-centric services, such as Digital Advisor and Personal Advisor, to make IRA investing even more hands-off.
Compare IRA Providers
| Features | Robinhood | JP Morgan | Thor Metals | Vanguard |
|---|---|---|---|---|
| IRA Types Offered | Traditional and Roth IRAs | Traditional, Roth, SIMPLE, and 401(k) | Self-directed IRA | Traditional, Roth, SEP, SIMPLE, and 401(k) |
| Investment Options | Stocks, ETFs, and options | Mutual funds, ETFs, stocks, and bonds | Gold or silver | Mutual funds, ETFs, and bonds |
| Fees | No IRA fees or commissions for trades | Depends on account type. For self-directed brokerage, no commissions on trades and a $75 account transfer and closure fee. | Fees not disclosed | $25 for each account or $25 per mutual fund in mutual fund-only accounts annually |
| Customer Service | Phone and live chat | Phone, email, and in-person support | Phone and email | Phone and email |
| BBB Rating | 1.1 stars; A- | 1.12 stars; A+ | No star reviews; A- | 1.08 stars; F |
FAQs
Eric Esposito is a freelance contributor on MoneyWise with an interest in financial markets, investing, and trading. In addition to MoneyWise, Eric’s work can be found on financial publications such as WallStreetZen and CoinDesk. When not researching the latest stock market trends, Eric enjoys biking, walking his dog, and spending time with family in Central Florida. Eric holds a BA in English from Quinnipiac University.
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