Retiring into a lower bracket
22 gives $840. 12 gives -$46,597 — a difference of $47,437 less (-5648.0%).
The same accounts, judged against two retirement brackets. The lower the rate at withdrawal, the better the traditional deduction looks.
| Input | 22 | 12 |
|---|---|---|
| You contribute a year(usd) | 7,500 | 7,500 |
| Years until you withdraw(years) | 25 | 25 |
| Annual return(percent) | 7 | 7 |
| Your tax rate now(percent) | 24 | 24 |
| Your tax rate in retirement(percent) | 22 | 12 |
| The traditional deduction is | Invested alongside | Invested alongside |
| Capital gains rate on the side account(percent) | 15 | 15 |
| Roth advantage, after tax | $840 | -$46,597 |
Every figure, both ways
| Step | 22 | 12 | Difference |
|---|---|---|---|
| Balance either account reaches | 474,367.78 | 474,367.78 | 0 |
| Roth, after tax | 474,367.78 | 474,367.78 | 0 |
| Traditional, after tax on withdrawal | 370,006.87 | 417,443.65 | +47,436.78 |
| Tax the deduction hands back each year | 1,800 | 1,800 | 0 |
| Refund invested alongside | 113,848.27 | 113,848.27 | 0 |
| Side account, after capital gains tax | 103,521.03 | 103,521.03 | 0 |
| Traditional plus the invested refund | 473,527.9 | 520,964.68 | +47,436.78 |
| What the Roth is worth over the traditional | 839.88 | -46,596.89 | -47,436.78 |
Questions people actually ask
- Does lowering your tax rate in retirement change the answer in proportion?
- No, and that is the point of putting them side by side. Your tax rate in retirement changes by 45% while roth advantage, after tax changes by 5648%. The step table below shows which line breaks the proportion.
- What is held constant between the two columns?
- Everything except your tax rate in retirement: you contribute a year, years until you withdraw, annual return, your tax rate now, the traditional deduction is, capital gains rate on the side account. That is what makes the difference attributable — change two things at once and neither column tells you which one moved the answer.
- Can I compare my own two numbers?
- Yes, from the address bar: add ?a.tax_later=… and &b.tax_later=… to set each side, and a parameter without a prefix sets both at once. The page is computed per request, so any pair works — these two are only the ones worth a link.
Change either side by adding query parameters — ?a.tax_later=… and b.tax_later=…. A parameter without a prefix sets both sides at once. Source: IRS — Traditional and Roth IRAs, IRS — IRA deduction limits