Choosing the right type of IRA can be a challenge. Are you better off with a traditional IRA, which helps you cut your current tax bill, or a Roth IRA, where you get to enjoy your earnings from the account tax-free?

This Roth vs. Traditional IRA Calculator helps you compare the performance of both types of IRA based on your personal financial situation. It takes into account your age, income, expected rate of return, annual contributions, tax rates, the age at which you plan to retire and more to let you see which type is likely to provide you with the greatest financial benefits.

Roth vs. Traditional IRA Calculator Overview

An IRA is a great investment tool to help prepare for retirement. Regardless of what type you get – a Roth or a traditional IRA – it gives you tax benefits that put more money into your pocket. However, there's a big difference in when you realize those tax benefits – and depending on your tax bracket, that will affect which is the better choice for you.

With a traditional IRA, most investor's contributions are made with pre-tax dollars. That is, the money you invest in your IRA are deducted from your earnings for the year, so you don't pay income taxes on it. Likewise, your investment returns in the IRA grow tax-free as well. However, the money you eventually draw out of the IRA when you're retired is taxed as regular income.

With a Roth IRA, you don't get a tax deduction for your contributions to the account – those are post-tax dollars. However, the money you invest still grows tax-free, and the distributions you take in retirement are untaxed as well. So it comes down to a question of taking your tax break now or later.

The question of which is the better choice often comes down to tax rates. If you're in a higher tax bracket now than you expect to be in during retirement, a traditional IRA may be the better option, since your contributions now give you a bigger break than your disbursements would in retirement.  But if you expect to stay in the same bracket or a higher one, it may be better to take the Roth and enjoy tax-free income when you retire.

Both the Roth and traditional IRA have limits on how much you can contribute each year. This limit was $5,500 in 2016 and is indexed to inflation in $500 increments. Those age 50 and over can contribute an additional $1,000 in "catch-up" funds.

Tax-deductible contributions to a traditional IRA and allowed contributions to a Roth IRA are phased out at higher income levels. Special limits for both apply to married couples filing separately. Also, your contributions to a traditional IRA may be limited if you also participate in an employer-sponsored retirement plan like a 401(k) or 403(b).

 

Using the Roth vs. Traditional IRA Calculator

Enter the requested information in the appropriate areas. For a more detailed explanation of each, click on the heading of any box. Clicking on the "Annual contribution" box heading will provide detailed information on contribution limits.

Check "maximize contributions" if you wish to contribute the current maximum allowed per year, plus the additional $1,000 per year for those age 50 and above.  Note that you can no longer make contributions to a traditional IRA after age 70½.

Checking the "married" or "employer contribution" boxes may affect the amount you can contribute per year.

The calculator will show which option will produce the larger account balance upon retirement.  To see the impact of investing your annual tax savings and the taxes on your distributions with a traditional IRA, click "View report." That will provide a detailed rundown of both options and a fuller analysis of the financial benefits of each, based on your situation.

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