Two retirees walk into very different retirements with the same $1 million on paper. One can spend the entire balance. The other can only spend part of it. On an account statement, the balances look identical. They aren't. We tend to fixate on the gross number on the screen. But wealth only means what it can actually buy, and once you account for how different accounts are taxed, a clear reality emerges: not all dollars are equal.

The Real Value of Each Dollar

Every dollar in a Traditional IRA still owes income tax. When the retiree withdraws, the IRS takes a slice. At a 24 percent rate, $1 million in a Traditional IRA is about $760,000 of spendable wealth; in the 32 percent bracket, about $680,000. The balance on the screen overstates what's yours — the IRS owns the difference and is waiting to collect. The Roth retiree, by contrast, has the full $1 million, free and clear of federal income tax.

Weighing the Upfront Trade-Off

In fairness, it's worth remembering where the money came from. A Traditional IRA gives you a deduction up front: $100,000 of gross salary can go straight in. To get $100,000 into a Roth, you first pay the tax on it — at a 24 percent rate, you'd need to earn about $131,500 to net the $100,000 deposit.

In the textbook model, the two are a wash if your tax rate is identical while working and in retirement. But life isn't a lab, and the Roth has another edge: the contribution limit. For 2026, the IRS caps annual IRA contributions at $7,500 (plus a $1,100 catch-up at age 50 and older). Because a Roth dollar is already taxed, putting $7,500 into a Roth shelters more real, after-tax money than the same $7,500 in a Traditional account.

The Return the Traditional Has to Earn Just to Tie

Because the Roth dollar carries that built-in after-tax premium, the Traditional account has to outperform just to match it in spendable terms.

Take two accounts of $100,000 each, growing for twenty years. At a hypothetical 7 percent a year, the Roth ends near $387,000 — all of it spendable. The Traditional also ends near $387,000, but pulled out at a 32 percent rate, the spendable amount drops to about $263,000.

Now flip it. To match the Roth's $387,000 of spendable wealth, the Traditional would need to end at about $569,000 pre-tax (so that $569,000 less 32 percent equals $387,000). Growing $100,000 to $569,000 over twenty years takes roughly 9.1 percent a year — every year, for twenty years. That's about 2.1 percentage points of extra annual return the Traditional has to deliver just to break even. Asking a portfolio to beat the market by two points a year, consistently, is an enormous demand.

The Roth doesn't need to outperform. It just needs to exist.

The Progressive Tax Reality

It's worth remembering that the U.S. taxes income progressively. Traditional IRA withdrawals aren't all taxed at your top rate — the first slice comes out against the standard deduction (effectively 0 percent), then 10 percent, 12 percent, and so on. That's exactly why Traditional IRAs remain valuable: they're excellent for filling the low brackets in retirement. But once those cheap brackets are full — from Social Security, a pension, rental income, or required minimum distributions — every additional Traditional dollar comes out at your highest marginal rate.

That's when the Roth becomes the hero of the plan. A new car, a dream trip, a medical bill — a lump sum from a Roth won't push you into a higher bracket or trigger more tax on your Social Security.

How Much You Actually Need

The same insight shows up another way: you physically need less in a Roth to fund the same lifestyle. Using the 4 percent rule of thumb, suppose you want $80,000 a year from tax-advantaged accounts:

• From a Roth: $80,000 ÷ 4% = $2 million needed.

• From a Traditional at 24%: $80,000 of spending needs about $105,000 pre-tax; $105,000 ÷ 4% = about $2.63 million.

• From a Traditional at 32%: $80,000 needs about $117,600 pre-tax; ÷ 4% = about $2.94 million.

So the Traditional saver needs roughly $630,000 to $940,000 more to fund the same after-tax lifestyle. For some households, a gap that size can be the difference between retiring years earlier, leaving an inheritance, or neither.

The Insight

A dollar in a Roth is more than a dollar. It works harder, lasts longer, asks less of the market, and shields you from future rate changes. Two retirees can show the same balance on paper and live very different financial lives — entirely because of which side of the tax line their savings landed on.

Seeing why this matters is the easy part. The hard part is getting money into the Roth efficiently while navigating your current tax reality — and that's where the gap between an average outcome and an excellent one tends to come from. When did someone last map that out for you?

DISCLAIMER:

This material is for educational purposes only and reflects the views of the author. It is not tax, legal, investment, or accounting advice, nor a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment or tax strategy. The strategies described are not suitable for everyone and depend on individual circumstances; consult your own qualified tax or financial professional before acting.

The growth examples are hypothetical illustrations of mathematical principles using assumed rates of return. They do not represent any specific investment and are not intended to predict or project results. The 4 percent withdrawal guideline and the tax-bracket assumptions are illustrative and may not reflect any specific household's situation. Contribution limits and tax figures reflect 2026 amounts and are subject to change. Investing involves risk, including the possible loss of principal.

Johnny Borrelli is a Registered Representative of Realta Equities, Inc., Member FINRA/SIPC, and an Investment Adviser Representative of Realta Investment Advisors, Inc. Neither Realta Equities, Inc., nor Realta Investment Advisors, Inc., is affiliated with Tax Alpha Companies, including Tax Alpha Title and Tax Alpha Solutions. Realta Wealth is a trade name for the Realta Companies, co-located at 1201 N. Orange Street, Suite 729, Wilmington, DE 19801. Realta Equities and Realta Investment Advisors are trade names for the Realta Companies. The Realta Companies are Realta Equities, Inc., Realta Investment Advisors, Inc., and Realta Insurance Services, which consist of several affiliated insurance agencies.