How it works

A useful distinction

Identical contributions can use different household budgets

With an assumed 25% current tax rate, a deductible 1,000 traditional contribution costs 750 after its tax saving, while a 1,000 Roth contribution uses 1,000 after-tax cash. Equal deposits are not automatically equal household cost.

Comparing accounts from the same starting budget

A Roth IRA comparison is most informative when both alternatives begin with a consistent budget. A contribution made from after-tax money is not directly comparable with a larger pretax contribution without accounting for that difference. Use the equal-budget mode for that question, and review the supported contribution-ceiling assumptions separately. The model does not predict future tax rules or investment performance.

Roth & taxable comparison: formula and assumptions

Compare tax-free growth with annual taxation of positive investment earnings.

Roth tax-free treatment assumes qualified distributions. Contribution eligibility and phaseouts must be verified separately.

Equal pretax-budget comparison: formula and assumptions

Roth contribution = pretax budget × (1−current tax). Traditional spendable balance = pretax future value × (1−withdrawal tax).

Compare the same pretax resources. This manual scenario assumes deductibility and qualified Roth distributions; annual contribution caps and income restrictions are evaluated separately.

2026 combined contribution ceiling: formula and assumptions

2026 ceiling = min(eligible compensation, $7,500 + $1,100 if age 50 or older).

Traditional and Roth contributions share the combined annual ceiling. This simple ceiling is before MAGI restrictions, deductibility and other eligibility rules.

Worked example

Reference example currency: USD. These fixed examples do not change with your calculator preferences.

Using the Roth & taxable comparison example:

Inputs

Starting balance ($): 10000
Annual contribution ($): 5000
Annual effective return (%): 5
Years: 20
Annual investment-income tax rate (%): 20

Method

Compare tax-free growth with annual taxation of positive investment earnings.

Result

Example result

Qualified Roth-style balance: $191,862.75

Annually taxed account: $170,801.62

These are illustrative inputs. Change the values to explore a different scenario.

What to keep in mind

This simplified taxable-account model taxes gains annually; actual capital-gains realization and dividend taxation can differ.

Formula references

References explain the underlying methods; they do not imply endorsement or individual professional review of Finflo.

Common questions

Why is Roth growth treated as tax-free in the comparison?

The scenario assumes qualified distributions. It does not establish contribution eligibility or decide whether an actual withdrawal qualifies.

Why can equal pretax resources mean a smaller Roth contribution?

Roth funding uses after-tax money in this model, so the entered current tax reduces the amount invested from the same pretax budget.

Does the 2026 ceiling account for every income restriction?

No. It is an age-and-compensation ceiling before MAGI restrictions, deductibility and other eligibility rules.

Prepared by Finflo. See our methodology and editorial policy. Read the relevant professional-advice limitations.

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