Contributions taxed now, growth taken free
A Roth is funded with money that has already been taxed. Nothing is deducted today, and in exchange qualified withdrawals in retirement are not taxed at all — including the growth.
That trade favours anyone who expects a higher tax rate later than now, which usually means younger savers early in their earnings curve.
The formula behind the number
Two things grow at once: the sum already invested, and each new contribution from the moment it arrives. Together they give:
Here P is the opening balance, M the monthly contribution, i the monthly return and n the number of months. The second term is why contributions made early matter more than contributions made late: each one is multiplied by growth for every month it remains invested.
Worked example: $500 a month for 30 years
The calculator opens on $500 every month and nothing to start with, at 7% a year for 30 years.
- Total paid in: $180,000
- Ending balance: $609,985
- Growth: $429,985, which is 239% of what you contributed
Because the growth is untaxed on qualified withdrawal, this figure is closer to spendable money than the equivalent balance in a pre-tax account.
Why the second half does the heavy lifting
At the halfway point, after 15 years, the balance is $158,481 — around 26% of the final figure, not half of it.
| Year | Paid in | Growth | Balance |
|---|---|---|---|
| 5 | $30,000 | $5,796 | $35,796 |
| 10 | $60,000 | $26,542 | $86,542 |
| 15 | $90,000 | $68,481 | $158,481 |
| 20 | $120,000 | $140,463 | $260,463 |
| 30 | $180,000 | $429,985 | $609,985 |
The untaxed portion is precisely the growth column, which is the part that expands fastest in the final decade.
What starting late costs
Delay by 5 years and, contributing at the same rate, you end with $405,036 instead of $609,985. That is $204,950 less for $30,000 of skipped contributions — the gap is the growth those early payments would have earned.
How sensitive is this to the return
The rate is an assumption, not a fact, so it is worth seeing the range. Two points higher gives $915,372; two points lower gives $416,129. The tax-free treatment applies to whatever the account earns, so a higher return compounds the value of the wrapper as well as the balance.
What this calculator leaves out
Annual contribution limits, income phase-outs, the five-year rule, and the fact that tax law can change over a thirty-year horizon.
Roth or pre-tax
The comparison reduces to one question: is your tax rate higher now or in retirement? Contribute pre-tax and you deduct at today's rate but pay at tomorrow's. Contribute to a Roth and you do the reverse.
Early-career savers usually face their lowest lifetime rate, which favours the Roth. Someone at peak earnings deducting at a high marginal rate usually does better pre-tax. Holding both hedges the question rather than answering it.
Related calculators
- 401(k) calculator — the pre-tax alternative
- IRA calculator — the traditional version of the same account
- Tax bracket calculator — the rate you pay now versus later