The Roth Calculator below helps you determine whether you end up with more retirement income using a Roth IRA or 401(k). Or using a traditional IRA or 401(k).
By the way? Most people probably end up with a better outcome using a traditional IRA or 401(k). But you want to “run the numbers”
Click the Calculate button to see example calculations using the default inputs. To get actionable insights for your own “Roth or not” decision, replace the default inputs with your own. Detailed instructions and additional information appear below the calculator.
Collect the Roth Calculator Inputs
Simple Strategy Withdrawals
| Simple Strategy | Traditional | Roth |
|---|---|---|
| Accumulation | ||
| Withdrawal | ||
| Less: Taxes | ||
| Net Amount |
Hybrid Strategy Withdrawals
| Hybrid Strategy | Traditional | Roth |
|---|---|---|
| IRA Balance | 0 | |
| Taxable Acct | 0 | |
| Accumulation | ||
| Withdrawal | ||
| Less: Taxes | 0 | |
| Net Amount |
Collecting the Inputs
You need to collect a handful of inputs. Most make intuitive sense. You enter the annual contribution you will make, the years you’ll save and the years you’ll spend, and then the nominal return and inflation rate you expect.
You need to enter at least two tax rates: your saving years “marginal” tax rate and the spending years tax rate on the withdrawals. The saving years marginal tax rate allows the calculator to estimate the taxes you save by making a deductible contribution to a tax-deferred IRA or 401(k). The spending years tax rate allows the calculator to estimate that taxes you’ll pay on the withdrawals from your tax-deferred IRA or 401(k).
Note: Your saving years tax rate usually is higher than your spending years tax rate. Your saving years tax rate equals your top marginal tax rate. The spending years tax rate, in comparison, blends low tax rates and higher tax rates. Also many people, and probably most people, report higher incomes during their working years than during their retirement years.
Understanding the Simple Strategy Results
The Roth Calculator lets you look at simple Roth strategies where you start with a set amount of pre-tax income. (Like $7,000.) And then either you use all of that pre-tax income to contribute to a traditional IRA or 401(k). Or you can first pay the taxes on that income and then contribute the leftover, after-tax amount (like maybe $5,320) to a Roth IRA or Roth 401(k).
Obviously, when you contribute smaller amounts to a Roth account with the simple strategy, you end up with a smaller future value. But that smaller future value represents after-tax savings. Thus, as you draw from the Roth account, you avoid paying income taxes again.
The calculator then assumes you annuitize the IRA balances over the specified years of spending. And that you pay income taxes only on the withdrawals from the traditional IRA or 401(k) at the spending years tax rate.
Obviously, you want to replace the default entries with your own personalized inputs. But the 22% tax rate is what a single filer reporting taxable income between roughly $47,000 and $100,000 might pay in 2024. Or what a married couple reporting taxable income between roughly $94,000 and $200,000 might pay in 2024. The 11% tax rate is what somone might pay by drawing from a roughly $500,000 IRA account and receiving typical Social Security benefits.
Understanding the Hybrid Strategy Results
The Roth Calculator also lets you look at a hybrid strategy where you contribute the same amount to both accounts. (Probably the maximum contribution allowed? So a number like $7,000.) But then you also save the extra tax savings you get from the traditional IRA contribution. In other words, if you save $1700 in income taxes by contributing to a traditional IRA or 401(k), the calculator looks at what happens if you save that money in a tax effcient stock index fund. The calculator assumes you pay qualified dividend tax rates on the dividends during your saving years. Thus, to model the hybrid strategy, you may want to replace the qualified dividends tax rate and the qualified dividends yield with your own numbers.
One other note: The hybrid strategy formulas assume you pay the qualified dividend rate on half of the money withdrawn from the taxable account. That’s probably conservative. Many retires might pay less tax. (If paying taxes on only half of the money sounds wrong, remember that you’ve aleady been taxed on the contributions over the years. And on the dividends.)
Additional Resources
If your modeling suggests a Roth IRA or Roth 401(k) doesn’t make sense and that’s a surprise? You might find this old blog post useful: Are Roth-IRAs and Roth-401(k)s Really a Good Deal?
To get up-to-date IRA and Roth-IRA contribution limits refer to the IRS’s “Retirement Topics – IRA Contributions Limits” web page.