Why the Roth advantage compounds
In a taxable account, taxes on dividends and realized gains skim a slice of your return every year, so you compound at a lower effective rate. In a Roth IRA the full return compounds untouched and qualified withdrawals are 100% tax-free. Over 30 years at 7%, $7,000/year grows to about $661,000 in a Roth; with a 22% annual tax drag the same deposits reach roughly $524,000 — a six-figure difference from tax treatment alone.
Roth vs traditional in one rule
Pay tax at whichever rate is lower. If your tax rate today is lower than you expect in retirement, Roth wins (pay the low rate now); if you're in peak earning years, traditional's upfront deduction usually wins. Early-career savers, and anyone who expects tax rates to rise, tend to favor Roth. Many people sensibly split contributions between both.
Contribution rules worth knowing
You need earned income at least equal to your contribution, and high earners face income phase-outs (around $150k-$165k single, $236k-$246k married for 2025-26 — check current IRS figures). Above the limits, the backdoor Roth remains a legal workaround. You can always withdraw your contributions (not earnings) penalty-free, which makes a Roth more flexible than most people assume.
How to use this calculator
Enter the annual amount you'll contribute (up to the $7,000 / $8,000 limit), the number of years you expect to keep contributing, and a realistic long-term return. To see the Roth advantage clearly, set the taxable-account tax rate to your actual marginal bracket — that's the yearly drag a Roth escapes. Two scenarios are worth running: a full-limit contribution every year, and a smaller amount you can sustain without fail. Consistency beats intensity here, because the tax-free compounding only works on money that stays invested. If you're deciding between Roth and traditional, weigh your expected retirement tax rate against today's — whichever is lower is where the contribution belongs.