Traditional vs Roth IRA — which is better?

It depends on the difference between your current marginal tax rate and your expected tax rate in retirement. If you expect to be in a lower bracket in retirement, Traditional usually wins. If you expect to be in a higher bracket — or want tax-free growth and no future RMDs — Roth often wins. This calculator quantifies the comparison for your own numbers.

Can I contribute to both a Traditional and a Roth IRA?

Yes, but the combined contribution across both cannot exceed the annual limit (which depends on your age). Roth eligibility additionally phases out at higher modified adjusted gross income.

What is the difference between an IRA and a 401(k)?

A 401(k) is sponsored by an employer with higher contribution limits and often an employer match. An IRA is opened individually with lower limits but typically a wider choice of investments. Many people contribute to both, prioritising the 401(k) up to the match, then maxing an IRA, then returning to the 401(k).

A Simplified Employee Pension IRA is a retirement plan for self-employed people and small-business owners. The employer (which can be yourself) contributes up to a percentage of compensation, capped at an absolute dollar limit set annually. There are no employee deferrals.

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees is an employer retirement plan for businesses with 100 or fewer employees. Employees can defer salary up to an annual limit, and the employer must either match contributions up to a percentage of pay or make a flat non-elective contribution. Early withdrawals within the first two years carry a steeper penalty than other IRAs.

Can I roll a 401(k) into an IRA?

Yes. A direct trustee-to-trustee rollover is the cleanest path and avoids withholding. If the check is paid to you, the receiving custodian must redeposit within the rollover window the law specifies or the distribution becomes taxable.

When can I withdraw without penalty?

Generally after age 59½. Earlier withdrawals from a Traditional IRA face the standard early-withdrawal penalty plus ordinary income tax. Roth contributions can be withdrawn anytime tax-free; earnings have separate timing rules. SIMPLE IRAs use a higher penalty for withdrawals within the first two years of participation.

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What the IRA calculator shows

An Individual Retirement Account is a tax-advantaged wrapper for retirement savings. The two main flavours — Traditional and Roth — differ only in when you pay tax. This tool runs the same dollars through three parallel scenarios — Traditional IRA, Roth IRA and a regular taxable brokerage — and surfaces the after-tax balance you would actually have at retirement. The chart and table let you watch the gap open year by year.

The math

Each year, every account compounds at the assumed return. The differences are at the boundaries — the contribution and the withdrawal:

Traditional IRA: the full gross contribution goes in pre-tax. Balance grows untaxed. At retirement, withdrawals are taxed at ordinary income rates. After-tax = Balance × (1 − retirement tax rate).
Roth IRA: contributions are made with after-tax dollars (Gross × (1 − current tax rate) actually lands in the account). Balance grows untaxed. Qualified withdrawals are tax-free. After-tax = Balance.
Taxable brokerage: contributions are after-tax dollars (same as Roth on the way in). Growth is taxed annually — interest and short-term gains at ordinary rates, qualified dividends and long-term gains at lower rates. This calculator applies a simplifying drag at the current marginal rate to growth each year.

In MathML, the Traditional after-tax future value is:

F V_{a t} = (P (1 + r)^{t} + P M T \frac{(1 + r)^{t} - 1}{r}) (1 - t_{r})

Traditional IRA: rules and tax treatment

Contributions to a Traditional IRA may be tax-deductible depending on income and whether you (or your spouse) are covered by a workplace retirement plan. When deductible, the contribution reduces taxable income in the year made, and tax is paid only when funds are withdrawn. Growth is tax-deferred. The deductibility phase-out ranges for taxpayers covered by a workplace plan currently sit between the low and high MAGI thresholds for single and joint filers stored in this tool's configuration. Outside those ranges deductions are either full or fully phased out.

Annual contribution limits depend on age — there is a base limit and a catch-up amount for those 50 or older. Withdrawals before age 59½ generally trigger an early-withdrawal penalty in addition to ordinary income tax. Required Minimum Distributions begin at the RMD starting age (see our RMD calculator).

Roth IRA: rules and income limits

Contributions are after-tax — there is no immediate deduction. Growth is tax-free, and qualified withdrawals (after age 59½ and the 5-year rule) are tax-free. Direct contributions phase out at higher MAGI; this tool stores the current single and joint phase-out ranges. Above the upper bound, direct contributions are not allowed, though a "backdoor" Roth contribution remains a common workaround for high earners. There are no RMDs during the original owner's lifetime, which preserves long-term tax-free compounding and makes the Roth a powerful estate planning tool.

For dedicated Roth scenarios and conversion analysis, see our Roth IRA calculator.

SEP IRA: for the self-employed

A Simplified Employee Pension IRA is a retirement plan available to self-employed individuals and small businesses. The employer contributes up to a percentage of compensation (stored as sepContributionPct in this tool — 25 percent of net self-employment earnings, with adjustments) capped at an annual absolute dollar limit (sepAbsoluteLimit). There are no employee deferrals, no Roth option in most arrangements, and all contributions are 100 percent vested immediately. Administration is light — no annual Form 5500 in most cases. The trade-off: if the business has employees, the employer must contribute the same percentage for every eligible employee.

SIMPLE IRA: small employer plan

A Savings Incentive Match Plan for Employees is designed for businesses with 100 or fewer employees. Employees defer a portion of salary up to an annual limit; the employer either matches dollar-for-dollar up to a percentage of pay (simpleEmployerMatchPct) or makes a flat non-elective contribution of 2 percent of pay. Employer contributions are mandatory each year. The catch most savers miss: early withdrawals within the first two years of SIMPLE IRA participation carry a higher penalty (simpleEarlyWithdrawalPenalty) than the standard early-withdrawal penalty (traditionalEarlyWithdrawalPenalty) — a meaningful difference.

IRA rollovers

You can roll over balances from a 401(k), 403(b), 457(b) or another IRA into an IRA. Best practice is a direct trustee-to-trustee transfer — no check ever touches your hands. If the distribution is paid to you, the IRA custodian must redeposit the amount within the rollover window of rolloverWindow days or the entire amount becomes taxable. Indirect rollovers also trigger mandatory federal tax withholding, which you must make up from other money to roll over the full pre-tax amount. The one-rollover-per-year rule applies to indirect IRA-to-IRA rollovers, not to direct transfers or 401(k)-to-IRA rollovers.

Investment options inside an IRA

Active brokerage: individual stocks, bonds, ETFs — full DIY control with no extra wrapper costs.
Mutual funds and index funds: a single fund can hold thousands of securities. Index funds keep expense ratios low.
Robo-advisors: automated portfolios with rebalancing and tax-loss harvesting for a small annual fee.
Self-directed IRA: opens access to alternative assets — real estate, private notes, precious metals. Allowed: real estate, mortgages, tax liens, private placements. Prohibited: collectibles, life insurance, S-corp stock and any transaction with disqualified persons (you, spouse, lineal ascendants/descendants, fiduciaries). The prohibited-transaction rules are strict and the penalties severe.

Worked example 1: Traditional vs Roth with falling tax rate

Sarah is 35, retiring at 65 (30 years), contributes $7,000/year, expects 7 percent return, current marginal rate 24 percent, retirement rate 22 percent. Starting balance $10,000 in each.

Traditional ending balance: ~$760,000. After 22 percent tax: ~$593,000.
Roth: gross $7,000 corresponds to $5,320 after current tax. Ending balance: ~$577,000 (no tax on withdrawal).
If we instead invest the tax savings outside (apples-to-apples), Traditional plus side taxable account roughly matches Roth.

Worked example 2: rising tax rate (Roth wins)

Same Sarah, but expected retirement tax 32 percent (higher than today's 24 percent).

Traditional after-tax ≈ $760,000 × 0.68 = $517,000.
Roth after-tax ≈ $577,000 (unchanged).
Roth pulls ahead by ~$60,000 because the lower rate was locked in at contribution time.

Comparison: Traditional vs 401(k)

Feature	Traditional IRA	Traditional 401(k)
Contribution limit	Lower	Much higher
Employer match	No	Often yes
Investment choice	Wide (any brokerage)	Plan menu only
Loan provision	No	Sometimes
Creditor protection	State-dependent	Strong federal (ERISA)

See the 401(k) calculator for a deeper look at the employer side.

Comparison: SEP vs SIMPLE for the small business

Feature	SEP IRA	SIMPLE IRA
Best for	Solo or very small firm	Up to 100 employees
Funding	Employer only	Employee defers + employer matches
Max contribution	Highest	Moderate
Employer required to fund?	Discretionary year-to-year	Yes, every year
Early withdrawal penalty	Standard	Higher within first 2 years

Roth conversion strategy

A Roth conversion moves dollars from a Traditional IRA to a Roth IRA, with the converted amount taxed as ordinary income this year in exchange for tax-free growth and qualified withdrawals later. Conversions are most powerful in low-income years — typically between retirement and the start of Social Security or RMDs — when marginal rates are temporarily depressed. Fill up the current bracket without spilling into the next one, repeat each year. Over a decade, methodical small conversions can shrink the future RMD base substantially and meaningfully cut lifetime tax. See our Roth IRA calculator for conversion modelling.

Edge cases

Spousal IRA. A non-working spouse may contribute to an IRA based on the working spouse's earned income, doubling household IRA contribution capacity.
Backdoor Roth. High earners above the Roth direct-contribution phase-out may contribute non-deductibly to a Traditional IRA and convert to Roth. Watch the pro-rata rule, which can make this messy if you hold other pre-tax IRA balances.
Excess contributions. Over-funding triggers a 6 percent annual excise tax until withdrawn or absorbed.
72(t) substantially equal periodic payments. One of the few ways to access IRA funds before 59½ without penalty — but the schedule is rigid and must run at least five years and until age 59½.
RMDs. Traditional IRA balances eventually trigger Required Minimum Distributions — see our RMD calculator.

What to do with the result

If Roth wins, max it. Roth space is uniquely valuable because it never has RMDs and the tax-free benefit compounds for decades.
If Traditional wins, capture the deduction. Lower today's AGI and reinvest the tax savings somewhere that compounds.
Diversify by tax treatment. Many savers hold both, giving them a lever to manage taxable income in retirement.
Automate contributions. Set monthly auto-debits so the year's limit is filled by December without thinking about it.
Re-run with different return and tax assumptions. The conclusion can flip — show yourself the range.

Use with the other money tools

For Roth-specific scenarios and conversions: Roth IRA calculator. For employer plans: 401(k) calculator. For RMD modelling on Traditional balances: RMD calculator. For overall retirement glide path: retirement calculator.

IRA Calculator

Balance over time

Year-by-year balances