Roth vs traditional retirement calculator for freelancers

Years and returns do not decide this. Two tax rates do.

Most Roth-versus-traditional comparisons bury the answer under thirty-year projections. In the pure model, growth multiplies both sides equally, so only two numbers matter: your tax rate now and your tax rate in retirement.

Enter them here and see which wins, plus the break-even retirement rate that flips the answer.

The answer is simpler than every article about it

Type "Roth vs traditional" into a search engine and you get dozens of articles running seven-figure projections with different return assumptions. Almost all of them obscure a fact that is genuinely surprising the first time you see it: the number of years and the rate of return do not affect which one wins.

The arithmetic is short. With a traditional contribution you invest the full pre-tax amount, let it grow, then pay tax on the way out. With a Roth you pay tax first, invest what is left, and withdraw tax-free. Both amounts are multiplied by exactly the same growth factor, so the growth lands on the pre-tax amount in one case and the after-tax amount in the other — and multiplying two numbers in either order gives the same product. The growth cancels.

What is left is a single comparison: your tax rate now versus your tax rate when you withdraw. Lower rate later, traditional wins. Higher rate later, Roth wins. Equal rates and the two are identical. That is the entire decision in its pure form, and everything else is a complication layered on top.

Why the projections mislead

Long-horizon illustrations make the choice look like it is about compounding, because the gap between the two projections grows enormous over thirty years. It does — but both projections grow by the same factor, so the ratio between them never changes. A comparison showing the Roth ending at $1.2m and the traditional at $1.4m is not evidence that thirty years of compounding favoured the traditional account; it is evidence that the assumed retirement tax rate was lower than the current one.

Changing the return assumption or the time horizon will change both final numbers dramatically and the winner not at all. That is the test: if a change in years or returns flips the recommendation in an illustration, the illustration is wrong.

Five complications that genuinely matter

The pure model is clean but incomplete. These are the factors that actually break the tie in practice.

• Contribution limits are the same dollar amount for both. This is the strongest argument for Roth. If you are maxing out your account, a Roth contribution of the limit is worth more than a traditional contribution of the limit, because the Roth dollars have already been taxed. You are sheltering more real wealth inside the same legal cap.
• Traditional contributions lower your AGI today. That can unlock or enlarge credits and deductions you would otherwise lose — worth real money that the pure model ignores. It is also why a traditional contribution in a high-income year is unusually valuable.
• Your retirement tax rate is unknowable. It depends on future tax policy, on where you live, and on how much you withdraw. A Roth contribution buys certainty: you have locked in a rate you can see. That certainty has value even when the maths slightly favours deferring.
• Roth withdrawals are more flexible. No required minimum distributions in retirement, contributions accessible earlier, and withdrawals that do not push you into a higher bracket or affect other means-tested benefits.
• State taxes can swamp the federal comparison. Retiring in a no-income-tax state while earning in a high-tax one tilts hard toward traditional; the reverse tilts toward Roth.

Why freelancers have an unusual advantage here

Employees usually pick one and stick with it. A freelancer with a Solo 401(k) can often split contributions between the two, which turns a forced choice into a hedging opportunity — and freelance income is volatile enough that the split should change year to year.

The rule of thumb follows from the maths: contribute Roth in low-income years and traditional in high-income years. You are being taxed cheaply in a lean year, so paying upfront costs little; in a bumper year the deduction is worth most. Over a career this naturally lands you in both buckets, which is the outcome most people should want anyway — you end up able to draw from whichever account the tax rules favour in any given retirement year.

Note that a SEP IRA is traditional-only, so it cannot be split. If splitting matters to you, the Solo 401(k) is usually the more flexible vehicle.

How to decide without pretending to predict the future

Start with the rate comparison, because that is the only part you can actually reason about. Are you in an unusually low-income year? Lean Roth. Unusually high? Lean traditional. Expect your income to keep climbing for a decade? Roth now. Expect to retire to a lower-tax state with a paid-off house? Traditional now.

Then stop trying to optimise the last few percent. The difference between a good and a perfect choice here is small next to the difference between contributing regularly and not contributing at all. Pay yourself first, pick the bucket that suits this year, and revisit the split annually as your income moves.