Analyze the tax impact and long-term benefit of converting traditional IRA or 401(k) funds to a Roth IRA across multiple scenarios.
A Roth conversion trades a tax bill today for tax-free withdrawals later: you move pre-tax IRA or 401(k) money into a Roth IRA, owe ordinary income tax on the converted amount that year, and the money then grows and comes out tax-free. This calculator runs the trade across several scenarios - convert everything now, in stages, or nothing - projecting each path's tax cost and after-tax value from your current marginal rate, an assumed retirement rate, and a growth rate. The result that surprises people: at equal tax rates the two paths are mathematically identical. Conversion only wins if today's rate is lower than the rate future withdrawals would face.
A concrete input and expected output from the current implementation.
Input
Traditional IRA balance $100,000; marginal tax rate now 22%; assumed marginal rate in retirement 22%; expected annual growth 5%; 20 years until withdrawal; scenario: convert the full balance now.
Expected output
Tax due on converting: $22,000 (22% of $100,000). Converted path: $78,000 grows at 5% for 20 years to about $206,957, tax-free. Unconverted path: $100,000 grows to about $265,330, and 22% tax on withdrawals leaves about $206,957. The scenarios come out equal because the tax rate is the same on both sides.
With equal rates, taxing now and growing tax-free is algebraically the same as growing tax-deferred and taxing at the end: $78,000 x 1.05^20 equals $265,330 x 0.78. The tool reports the two after-tax totals as nearly matching, so this input is the textbook case where conversion changes nothing financially.
The decision reduces to one comparison. Converting: you pay your current marginal rate on the converted amount, and the remainder grows tax-free in the Roth. Not converting: the full balance grows tax-deferred, and withdrawals are taxed at whatever rate applies then. The calculator compounds the same growth rate on both paths, applies today's rate on one side and your assumed future rate on the other, and reports the after-tax gap.
The tool compares several scenarios: no conversion, full conversion now, staged conversions, showing each one's tax cost and projected after-tax balance. Fairness hinges on two inputs: whether the conversion tax is assumed paid from outside savings, leaving the full amount to grow, or withheld from the IRA, which shrinks what converts; and whether a large conversion in one year is taxed at one marginal rate or across several brackets.
No. At equal rates the two paths are mathematically identical: $100,000 converted at 22% costs $22,000 today, and the remaining $78,000 growing at 5% for 20 years ends near $206,957 - the same after-tax figure as paying 22% on a tax-deferred balance that grew to about $265,330. Conversion wins only when today's rate is lower, or for side benefits such as shrinking future RMDs.
No - the conversion itself is never penalized; you owe ordinary income tax on the converted amount in the year of conversion, no matter your age. The penalty can surface later: if you withdraw that converted money within five years of the conversion while under age 59.5, the withdrawn amount is subject to the 10 percent additional tax.
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