How it works
With a traditional account you contribute pre-tax money and pay income tax on withdrawals. With a Roth you pay tax now and withdrawals in retirement are tax-free.
If your tax rate is the same now and later, both give exactly the same after-tax result, because multiplication order does not matter. The deciding factor is whether you expect a higher or lower tax rate in retirement.
This comparison holds the pre-tax cost the same for both: a $7,000 traditional contribution versus the $5,460 Roth contribution that the same income buys at a 22% tax rate. Turn on "invest tax savings" to compare equal dollar contributions instead: the Roth saver contributes the full amount, and the traditional saver invests the upfront tax break in a taxable account whose growth is taxed each year at today's rate.
Formula
Roth = FV(C × (1 − tax now)); Traditional = FV(C) × (1 − tax later), where FV is the future value of yearly contributions
Questions people ask
When is a Roth better?
When you expect your tax rate in retirement to be higher than today, which is common for early-career workers with lower incomes. Roth accounts also have no required minimum distributions for the original owner.
When is traditional better?
When your tax rate now is higher than you expect in retirement, as for many people in their peak earning years.
Can I split contributions between both?
Yes. Many people hedge by putting some money in each, which gives flexibility to manage taxable income in retirement.