The Roth Bargain: Tax Now, Never Again
A Roth IRA — created by the Taxpayer Relief Act of 1997 and named for Senator William Roth — flips the
usual retirement-account deal. A traditional IRA pays you up front (a deduction today) and taxes every dollar
on the way out. A Roth gives nothing up front: contributions are made with after-tax money. In exchange,
everything that happens afterwards is free — growth is never taxed, and qualified withdrawals in retirement
are never taxed either. This calculator prices that bargain by running the same deposits through both a
Roth and an ordinary taxable brokerage account and letting the tax treatment be the only difference.
Taxable account's net growth = return × (1 − tax rate) · defaults: 6% × (1 − 25%) = 4.5%
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The mechanism on the taxable side is tax drag: each year's interest is taxed at your marginal rate as it
is earned, so less is left to compound. A drag of 1.5 percentage points sounds minor; stretched over the
defaults' 35 years it removes $152,915 in tax and, with the compounding those dollars would have done,
$315,098 of final balance — the Roth ends at $1,066,343 against $751,245, on identical principal of
$292,500. Note what the comparison assumes: the taxable account's return arrives entirely as annually-taxed
interest. A buy-and-hold equity account taxed later at capital-gains rates would land somewhere between the
two lines — the Roth line, however, is a ceiling no taxable account can cross.
Contribution rules (2026)
For 2026 the limit is $7,500 if you are under 50 and $8,600 at 50 or older, across all your IRAs
combined — modest next to the 401(k)'s $24,500, which is the Roth's most-cited drawback. You must have earned
income (wages, tips, bonuses, self-employment) at least equal to what you contribute, and high earners are
phased out: direct contributions end at an AGI of $168,000 for single and head-of-household filers and
$252,000 for married filing jointly (up from $165,000 and $246,000 in 2025). Contributions for a tax year
can be made until the April filing deadline of the following year. One consolation for lower earners: the
Saver's Credit (Form 8880) can refund 10%–50% of the first $2,000 contributed, though it is non-refundable.
The maximize toggle on this page holds the 2026 limits flat for every future year rather than guessing at
inflation adjustments.
Getting money out
The Roth's signature flexibility is that contributions come back out at any time, tax- and penalty-free —
they were already taxed once. That makes the account double as a deep emergency reserve, with one sting: money
withdrawn cannot be put back beyond the normal annual limit. Earnings are stricter. They are tax-free only
in a qualified distribution: the account at least five years old and you are 59½, disabled, deceased (the
money goes to a beneficiary), or using up to a $10,000 lifetime amount toward a first home. The same exceptions
can waive the 10% early penalty in some non-qualified cases while leaving the tax itself due. And uniquely
among retirement accounts, a Roth IRA has no required minimum distributions for its owner — nothing ever
forces the compounding to stop.
Pros, cons, and the conversion door
Beyond the headline tax-free retirement income, a Roth offers tax diversification (tax-free withdrawals do not
count as income, so they can keep you out of a higher bracket or under Medicare premium thresholds), wide
investment choice at any major institution, account values that are not reported as assets on the FAFSA, and
heir-friendly treatment since inherited Roth distributions are income-tax-free. The cons are the mirror image:
tax is paid at today's rates with no deduction, the contribution limit is low, high earners are locked out of
direct contributions, earnings face the five-year clock, and money earmarked for charity is wasted in a Roth —
charities pay no tax anyway, so pre-tax dollars are worth more to them (a traditional IRA's qualified charitable
distribution is the sharper tool). If the income limit locks you out, the backdoor remains: contribute to a
traditional IRA and convert it. Conversions have no income limit and no amount limit — same-trustee transfer,
different-trustee transfer, or a 60-day rollover — but the converted pre-tax money is taxed in the year of
conversion, each conversion starts its own five-year clock for penalty purposes, RMDs cannot be converted, and
the tax bill should be paid from funds outside the IRA, or the conversion shrinks the very balance it was
meant to shelter.
FAQ
Roth or traditional — which wins?
It reduces to one comparison: your tax rate now versus your tax rate in retirement. Pay the lower one. This calculator's Roth-vs-taxable comparison is the extreme case of the same logic — the Roth wins here because the alternative pays the full marginal rate on growth every single year.
When does the five-year clock start?
On January 1 of the tax year of your first Roth contribution — a contribution made in April 2027 for tax year 2026 starts the clock on January 1, 2026. Conversions run on separate clocks, one per conversion year.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial or tax advice. Contribution limits and income thresholds shown are for the 2026 tax year and are held flat in projections.