Why "tax-free" is such a big deal
In a Roth IRA you contribute money you've already paid tax on. In exchange, qualified withdrawals in retirement — contributions and all investment growth — come out completely tax-free. Look at the "investment growth" line in your result: over decades, the majority of a Roth balance is typically gains, and in a Roth you never pay a cent of tax on them. In a regular taxable account, those same gains would be taxed.
Roth vs Traditional in one sentence
Pay tax now (Roth) or pay tax later (Traditional). Roth wins if you expect to be in the same or a higher tax bracket in retirement — which describes many young savers whose income (and tax rate) will rise. Traditional wins if you're in a high bracket now and expect a lower one later. Splitting contributions hedges the bet.
Rules worth knowing
- Contribution limits are set annually (e.g. $7,000 in 2024, plus a $1,000 catch-up at 50+). This calculator assumes a constant contribution; adjust as limits rise.
- Income limits can reduce or block direct Roth contributions at higher incomes.
- Flexibility: your contributions (not earnings) can generally be withdrawn anytime without penalty, making the Roth unusually flexible — though raiding it sacrifices the tax-free growth that makes it valuable.
- No required withdrawals during the original owner's lifetime, unlike traditional accounts.
The takeaway
A Roth IRA is one of the most powerful wealth tools available to ordinary savers precisely because of that tax-free growth line. Maxing it out each year, invested in low-cost diversified funds and left alone for decades, is a quietly spectacular strategy. As always, the projection assumes a steady average return that real markets deliver only in the long run.