Roth IRA vs Traditional IRA: Which One Actually Makes You Richer (We Ran the Math)

Originally published on DailyBudgetLife.

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Every personal finance corner of the internet has an opinion on the Roth IRA vs Traditional IRA debate. Half of them are wrong, and the other half are so obsessed with hedge-words and "it depends" disclaimers that they never actually tell you what to do.

I'm going to tell you what to do.

I'm also going to show you the exact math — four age scenarios, real numbers, no hand-waving. By the end of this article, you'll know which IRA makes you richer, when the answer flips, and what to buy with your first $7,000.

One-Sentence Answer

If you're under 40 and earning under $100,000 a year, open a Roth IRA. Not tomorrow. Today.

That's the answer for roughly 70% of people reading this. The Roth IRA wins by a margin of $329,000 over a 40-year investing career. That's not a rounding error. That's a house.

The Core Difference in 60 Seconds

Both IRAs let you invest $7,000 per year (the 2025/2026 IRS limit) and grow your money tax-free inside the account. The difference is when you pay taxes.

• Roth IRA: You pay taxes NOW on the money you contribute. Your investments grow tax-free. When you withdraw in retirement, you owe nothing.
• Traditional IRA: You deduct contributions NOW (lowering this year's tax bill). Your investments grow tax-deferred. When you withdraw in retirement, you pay income tax on every dollar.

Feature	Roth IRA	Traditional IRA
2026 Contribution Limit	$7,000 ($8,000 if 50+)	$7,000 ($8,000 if 50+)
Tax Break	None now — tax-free withdrawals later	Tax deduction now — taxed withdrawals later
Income Limit	$150K single / $236K married (phaseout)	No income limit (deduction may be limited)
Withdrawal Age	Contributions anytime; earnings after 59½	After 59½ (10% penalty before)
Required Minimum Distributions	None — ever	Must start at age 73
Early Withdrawal	Contributions penalty-free	10% penalty + income tax
Best For	Younger, lower-bracket earners	Higher-bracket earners near retirement

The Math: 4 Age Scenarios

Same assumptions for each: $7,000/year, 7% average annual return (roughly the historical S&P 500 return adjusted for inflation), retirement at 65.

Age You Start	Years	Total Contributed	Portfolio at 65	Roth (Tax-Free)	Traditional (22% Tax)
25	40	$280,000	$1,497,000	$1,497,000	$1,168,000
30	35	$245,000	$1,033,000	$1,033,000	$806,000
35	30	$210,000	$707,000	$707,000	$551,000
40	25	$175,000	$476,000	$476,000	$371,000

A 25-year-old who maxes a Roth IRA walks away with $1,497,000 tax-free. The same person using a Traditional IRA at a 22% withdrawal rate keeps $1,168,000.

That's a $329,000 difference. Just from choosing the right account type.

And look at the 35-year-old column. By waiting just 10 years, you lose $790,000 in final portfolio value. Every year you wait costs you roughly $79,000 in future wealth.

When the Traditional IRA Actually Wins

1. You're in the 32% bracket or higher ($191,950+ single income). The upfront savings are significant enough to invest the difference.
2. You're over 50 and retiring within 15 years. Short horizon = less time for compound growth to magnify the Roth advantage.
3. You're retiring in a no-income-tax state (FL, TX, NV, WA, WY, TN, SD, AK, NH). Deduct now, pay zero state tax later.
4. You expect to earn significantly less in retirement. Deferring at 24% and withdrawing at 12% is real savings.

For most people under 40 making under six figures? None of these apply. Go Roth.

Your First $7,000: What to Actually Buy

Option 1: Target-Date Fund (Easiest)

Pick a fund matching your retirement year. At Fidelity: Freedom Index 2060 (FDKLX, 0.12%). At Schwab: Target 2060 (SWYNX, 0.08%). One fund. Done forever.

Option 2: Three-Fund Portfolio (Simple DIY)

• 60% VTI — Vanguard Total U.S. Stock Market ETF (0.03%)
• 30% VXUS — Vanguard Total International Stock ETF (0.07%)
• 10% BND — Vanguard Total Bond Market ETF (0.03%)

Total cost: ~0.04% blended. Rebalance once a year (15 minutes).

Option 3: S&P 500 Index Fund (One and Done)

• VOO — Vanguard S&P 500 ETF (0.03%)
• FXAIX — Fidelity 500 Index Fund (0.015%)

Warren Buffett's estate plan literally tells his trustee to put 90% in an S&P 500 index fund. If it's good enough for the Oracle of Omaha, it's probably good enough for you.

The 3 Biggest Beginner Mistakes

Mistake #1: Not maxing contributions. Every dollar under $7,000 is compound growth you'll never get back.

Mistake #2: Contributing but not investing. An IRA is just a tax-advantaged wrapper. If your $7,000 is sitting in a money market fund, you haven't invested. You've made a savings account with extra steps.

Mistake #3: Withdrawing early. That $1,000 you withdraw at 28? At 7% annual returns, it would have been worth $14,974 at age 65. You just paid fifteen grand for a long weekend in Cancún.

The Bottom Line

The Roth IRA wins by $329,000 over 40 years for someone in the 22% bracket. Even if tax rates drop in retirement, the Roth still wins. Even if you start at 35 instead of 25, the Roth still wins.

Stop reading about retirement. Start funding it. Open a Roth IRA today, deposit whatever you can — even $100 — and buy a target-date fund or VTI.

Your future self will either thank you or resent you. That decision happens today.

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Read the full article with FAQ and more detail at DailyBudgetLife.