Roth IRA tax-free growth: the compounding advantage that changes everything
In a Roth IRA, every dollar of growth is yours. No tax on dividends, no tax on capital gains, no tax on withdrawal. In a Traditional IRA, the IRS owns a slice of every dollar, and you do not know how big the slice will be until you retire.
The headline number
Contribute $7,000 a year from age 30 to 65 at a 7% annual return. The gross balance is identical in either account. The difference is in what you keep.
Projection table: $7,000/year at 7% by starting age
Each row is a starting age, contributing $7,000 a year to age 65 at a 7% return. The "Traditional kept" columns show what survives after a withdrawal-tax haircut at the indicated rate.
| Start age | Years | Contributed | Roth (tax-free) | Trad at 12% | Trad at 22% | Trad at 24% | Trad at 32% |
|---|---|---|---|---|---|---|---|
| 25 | 40 | $280K | $1.40M | $1.23M | $1.09M | $1.06M | $950K |
| 30 | 35 | $245K | $968K | $852K | $755K | $735K | $658K |
| 35 | 30 | $210K | $661K | $582K | $516K | $503K | $450K |
| 40 | 25 | $175K | $443K | $390K | $345K | $336K | $301K |
| 45 | 20 | $140K | $287K | $253K | $224K | $218K | $195K |
| 50 | 15 | $105K | $176K | $155K | $137K | $134K | $120K |
Future value of an annuity, end-of-year contributions. Roth column is the gross balance, which is what you keep tax-free at retirement under the 5-year rule and age 59.5.
Tax-rate uncertainty
Traditional IRA supporters assume you will be in a lower bracket at retirement. But 2026 brackets, made permanent by OBBBA in July 2025, are the lowest in modern history. The 12% bracket did not exist before 2018; it was 15%. The 22% bracket was 25%. If rates ever return to pre-TCJA levels, Roth holders are insulated. Traditional holders pay tomorrow's rate, whatever it turns out to be.
RMD drag on Traditional
Traditional IRAs force withdrawals starting at age 73 (75 from 2033 under SECURE 2.0), even when you do not need the money. Forced withdrawals are taxable income that can push you into higher brackets and trigger IRMAA Medicare surcharges. Roth has no RMDs. See the full withdrawal rules.
Estate planning advantage
Under the SECURE Act 10-year rule, both Roth and Traditional non-spouse heirs must withdraw the inherited account within 10 years of the owner's death. The difference: Roth heirs pay no income tax on those withdrawals. Traditional heirs pay ordinary income tax on every dollar. For wealth transfer to children or grandchildren, Roth is unambiguously better.