Why Today I'd Rather Pay Tax on the Seeds Than the Harvest

A Traditional IRA vs. Roth IRA Example for 2026

In 44 years of helping people plan for retirement, I've never had a stronger preference for one type of IRA than I do today.

It has become crystal clear - when it comes to retirement savings - I'd much rather pay tax on the seeds than on the harvest.

Let's look at a simple example.

Suppose you invest $1,000 per month for 30 years and earn an average annual return of 9% per year. At the end of 30 years, your account could grow to approximately $1.8 million.

A Traditional IRA offers an immediate reward. If you're in a 12% federal income tax bracket, each $1,000 monthly contribution reduces your taxable income. Over 30 years, you'll contribute a total of $360,000 and save approximately $43,200 in federal income taxes.

That sounds pretty attractive.

But investing is a long-term game.

Thirty years later, that $360,000 of contributions may have grown into approximately $1.8 million. If future withdrawals are taxed at 25%, as assumed in this example, about $450,000 could ultimately go to federal income taxes.

That would leave roughly $1.35 million after taxes.

Now let's look at the Roth IRA.

The Roth requires you to pay taxes before the money is invested. There is no current tax deduction. You give up the $43,200 of tax savings that the Traditional IRA provides.

In exchange, qualified Roth withdrawals are generally free from federal income tax.

Using the same assumptions, the Roth IRA could also grow to approximately $1.8 million.

But instead of paying taxes on the harvest, the entire account may be available tax-free.

That's a significant difference.

Of course, nobody knows what tax rates will be 30 years from now. Congress can change tax laws, and every investor's situation is unique.

Still, when I look at federal debt levels, government spending, and long-term budget pressures, I find it difficult to argue that today's tax rates are guaranteed to remain in place for future retirees.

That's why my thinking has evolved.

For many investors, especially those currently in lower tax brackets, the Roth IRA deserves serious consideration.

And remember, Roth opportunities may extend beyond a Roth IRA.

Many employer-sponsored 401(k) plans now offer a Roth 401(k) option alongside the traditional pre-tax contribution option. If your employer offers both, it may be worth comparing the long-term impact of each choice.

Investors may also want to explore Roth conversions, gradually moving money from a Traditional IRA into a Roth IRA and paying taxes in a controlled manner over time.

Higher-income individuals who are not eligible for direct Roth IRA contributions may also want to investigate whether a backdoor Roth IRA strategy is appropriate for their situation.

None of these strategies is right for everyone. But I believe they deserve a closer look than ever before.

After 44 years in the retirement business, I've become increasingly convinced that paying tax on the seeds can be preferable to paying tax on a much larger harvest decades later.

Fred Quinn

Serious Money Ohio

44 Years Helping Northwest Ohio Families Plan for Retirement