Roth vs Traditional: Lifetime Tax Decision Engine
Example: Annual contribution: 7000 $ · Current marginal tax rate: 22 % · Expected retirement tax rate: 18 % · Expected annual return: 7 % · Years to retirement: 25
| Roth after-tax wealth at retirement | $345,340 |
| Traditional after-tax wealth at retirement | $363,049 |
| After-tax advantage of winning strategy | $17,710 |
| Roth wins verdict (1=Roth, 0=Traditional) | 0 |
Worked example
Contributing $7,000/year at a 22% current tax rate vs an expected 18% retirement rate over 25 years at 7% return: Traditional grows to $474,000, leaving $388,680 after 18% tax. Roth grows from $5,460 after-tax contributions to $369,908 tax-free. Traditional wins by about $18,772 here — because the retirement rate is lower than today's.
Frequently asked questions
When does Roth win?
Roth is better when your retirement tax rate will be higher than your current rate — common for young earners early in their career, those expecting large RMDs, or those in low-bracket years due to career breaks. Traditional wins when you expect a meaningfully lower rate in retirement.
Can I contribute to both in the same year?
Yes — the IRS $7,000 annual IRA limit (2025) applies to the combined total across all your traditional and Roth IRAs. You can split contributions however you like. Many advisors suggest hedging both in mid-career years when your future rate is uncertain.
What about Required Minimum Distributions?
Traditional accounts require RMDs starting at age 73 (per SECURE 2.0), which can push you into higher tax brackets. Roth IRAs have no lifetime RMDs for the original owner, making Roth accounts more flexible for estate planning and late-retirement tax management.
What if I am in the 12% bracket now?
The 12% bracket is often the Roth sweet spot — you pay taxes now at a historically low rate and withdraw tax-free later. If you expect to be in the 22% or higher bracket in retirement (due to RMDs, pensions, SS), the Roth advantage over Traditional can be substantial.