About Roth IRAs
The Roth trade: pay taxes on the seed, never on the harvest. For young savers and anyone expecting equal-or-higher future tax rates, it's the standard recommendation — decades of compounding exiting entirely tax-free, no RMDs ever forcing withdrawals, and contribution flexibility no other retirement account matches.
Enter your ages, annual contribution, any existing balance, and an assumed return. The projection shows the tax-free total and its contributions/growth split — the growth line being the tax bill you'll never receive. Maxing the annual limit? Enter the current year's figure from irs.gov; it changes.
Workplace plan with a match comes first in priority order — model it with the 401k Calculator.
The Tax-Free Math
Standard future value; the tax treatment is the feature:
FV = balance × (1+r)ⁿ + monthly × ((1+r)ⁿ − 1) ÷ r Qualified withdrawal tax: $0 on ALL of it (qualified = age 59½+ AND account open 5+ years)
Worked example: $7,000/year from 30 to 65 at 7% grows to about $1,050,000 — of which only $245,000 was contributed. The $806,000 of growth exits untaxed; the same growth in a traditional IRA would be taxed as ordinary income on withdrawal, and in a brokerage account taxed along the way.
Roth vs Traditional vs Taxable
The three homes for the same $7,000/year, honestly compared:
| Account | Tax going in | Tax on growth | Tax coming out | RMDs? |
|---|---|---|---|---|
| Roth IRA | None saved (after-tax) | None | None (qualified) | Never (owner) |
| Traditional IRA | Deductible (if eligible) | Deferred | Ordinary income | From 73 |
| Taxable brokerage | None saved | Dividends/gains taxed | Capital gains | Never |
The Roth-vs-traditional decision is a tax-rate bet: deduct now (traditional) wins if retirement rates are lower; tax-free later (Roth) wins if equal or higher. Splitting between both hedges the guess.
Rules Worth Knowing
Flexibility is the Roth's quiet feature: CONTRIBUTIONS (not growth) can come back out anytime, tax- and penalty-free — which is why it doubles as a deep emergency reserve. Growth withdrawn early generally owes tax plus 10% penalty, with exceptions (first home up to a capped amount, and others). The five-year clock on the account matters even past 59½ — open a Roth early if only with $100, to start it ticking.
Income phase-outs cap direct contributions for high earners — the numbers adjust yearly (irs.gov) — but the backdoor Roth (nondeductible traditional contribution + conversion) remains the standard workaround, complicated mainly by existing pre-tax IRA balances (the pro-rata rule). And unlike 401(k)s, IRAs are self-chosen: any broker, any funds, which usually means lower fees than an average workplace menu.