The single most powerful argument for a Roth IRA isn't the contribution limit or the tax break — it's the multi-decade math of tax-free compounding. The calculator above lets you project that math forward with realistic inputs: a starting balance, an annual contribution, an expected rate of return, and a time horizon.
Below we unpack what those numbers actually mean, where realistic return assumptions come from, and why the tax-free nature of a Roth makes its ending balance materially larger than the same money held in a taxable brokerage account.
Why tax-free compounding matters more than the contribution
Over 40 years at 7% real returns, $7,000 contributed annually grows to roughly $1.4 million. In a taxable brokerage account, federal and state taxes on dividends and capital gains typically erase 25–40% of that growth, leaving an effective balance of $850,000 to $1.05 million. Our compound growth deep dive breaks down the year-by-year math. The Roth's $350,000+ advantage isn't from the contribution being special — it's from never paying tax on the gains.
The longer the time horizon, the more dramatic the gap. A 25-year-old who maxes a Roth until 65 captures far more of this advantage than a 55-year-old starting late, simply because there are more years of untaxed growth.
Realistic return assumptions
The S&P 500's long-term real return (after inflation) has been about 7% annualized over the last century. Adding back inflation gives a nominal return closer to 9–10%. For projections you can choose either basis, but be consistent — if you use nominal returns, your ending balance is in inflated future dollars, which makes large numbers easier to overstate.
Bond-heavy portfolios return less. A 60/40 stock/bond portfolio historically returns about 5–6% real. The earlier in your career you are, the more justified an aggressive allocation tends to be, since you have decades to ride out volatility.
The arithmetic of small fees
A 1% annual expense ratio over 40 years reduces your ending balance by roughly 24%. This is why low-cost index funds — typical expense ratios of 0.03% to 0.10% — dominate financial-advisor recommendations for the equity portion of a Roth IRA.
Trading costs also compound. Many savers underperform their funds by trying to time the market or chasing recent winners. A simple buy-and-hold strategy with periodic rebalancing tends to outperform active trading over multi-decade horizons.
Sequence-of-returns risk
Average returns hide a critical risk: the order in which they occur. A portfolio that earns 7% on average but loses 30% in year one will look very different from one that earns the same average with steadier returns. Sequence risk matters most in the years immediately before and after retirement, when the balance is largest and you start withdrawing.
The Roth's tax-free withdrawal feature provides a powerful buffer here — explored further in our lifetime Roth strategy guide, because every dollar withdrawn is a full dollar — no tax friction at the worst possible time.
Asset location: what to hold inside a Roth
Because Roth gains are never taxed, the Roth is the optimal home for your highest-expected-return assets: U.S. and international equities, small caps, and emerging markets. Tax-inefficient assets like REITs or actively-managed funds also fit well inside a Roth because their distributions would otherwise be heavily taxed in a brokerage account.
Bonds and Treasuries generally belong in pre-tax accounts (Traditional IRA, 401(k)), since their interest is taxed as ordinary income and their expected return is lower — wasting Roth space on bonds is a common, costly mistake — see asset location strategy for the full framework.
Frequently asked questions
Are Roth IRA earnings really tax-free?+
Yes, if you take a qualified distribution — meaning you're at least 59½ AND the account has been open at least 5 years. All growth is tax-free at that point.
What return should I assume?+
For a long-term equity-heavy Roth, 7% real (or 9–10% nominal) is a reasonable historical baseline. Adjust down for bond allocation.
Should I keep stocks or bonds in my Roth?+
Stocks. Because Roth growth is never taxed, you want your highest-expected-return assets in the Roth and lower-return bonds in tax-deferred accounts.
What if the market crashes right before I retire?+
Sequence-of-returns risk is real. Diversification, a small bond allocation as you approach retirement, and flexibility on withdrawal timing all help mitigate it.
Can I lose money in a Roth IRA?+
Yes — the Roth is an account type, not an investment. Your balance depends entirely on the investments you select within it.
