After-Tax Balance Over Time
Growth Schedule
| Age | Year | Trad. IRA (Pre-Tax) | Trad. IRA (After-Tax) | Roth IRA | Taxable Account |
|---|
Traditional vs. Roth IRA
Traditional IRA: Contributions may be tax-deductible now, reducing your taxable income in your working years. Growth is tax-deferred — you pay ordinary income tax only when you withdraw in retirement.
Roth IRA: Contributions are made with after-tax dollars. All qualified withdrawals — including decades of growth — are completely tax-free. For many, paying taxes today to receive tax-free income later is a powerful trade-off.
The Power of Compounding
An IRA is not the investment itself — it's the tax-advantaged container. Inside, you can hold mutual funds, index funds, ETFs, bonds, or individual stocks. Because earnings are shielded from annual taxation, your growth compounds on a larger base year after year.
Even modest, consistent contributions started early can grow substantially. The earlier you begin, the greater your compounding advantage.
Contribution Limits & Rollovers
For 2025, the IRA contribution limit is $7,000/year ($8,000 if age 50+). SEP IRAs allow up to 25% of income or $70,000, making them ideal for self-employed individuals.
When changing jobs, you can roll over a 401(k) or 403(b) into a Traditional or Roth IRA — often without triggering taxes — to consolidate accounts and expand your investment options.
Which Is Right for You?
If you expect to be in a lower tax bracket at retirement than you are today, a Traditional IRA typically wins — you defer taxes until you're paying a lower rate. If you expect to be in a higher bracket (or want tax-free income certainty), the Roth is usually better.
A balanced strategy often includes both — maximizing a Roth while also contributing to a Traditional or employer plan — to diversify your future tax exposure.