The Same Money in Three Different Accounts

By Neil Solomon · 4 min read

Imagine you have two million dollars saved for retirement, and all of it sits in one account. Maybe it is a 401(k) from a company you left. Maybe it is an Individual Retirement Account you built over thirty years.

Those names need a plain definition. An Individual Retirement Account, called an IRA, is a savings account that comes with a tax break. A 401(k) works the same way, but an employer sets it up. Both come in two kinds. In a traditional account, the money goes in before tax and grows without tax, and every dollar taken out is taxed as income. In a Roth account, the money goes in after tax, and the growth and the withdrawals are tax-free when the rules are met. A regular account has no break at all. The interest is taxed every year.

I built our calculator without asking which kind of account the money sits in. The calculator tells a person or a couple how much they would need on the day they retire to live in a country they choose, at a standard they choose, spending the money down to zero over twenty to thirty years. It priced that money as if it sat in a regular account.

I thought a dollar was a dollar. Then I thought about the people who might use it. Many people with this kind of money keep it in a retirement account. So I wanted to know how much the answer moves.

You might think the kind of account is a detail for an accountant. I thought so too.

We took one example. A married couple spends $100,000 a year for twenty-five years. Their money is in American Treasury bonds that raise what the government owes them whenever prices rise. Those inflation-protected bonds pay 2.91 percent above inflation today. We used the 2026 federal tax rules for a couple filing together, and no state tax. Every figure is in today’s dollars.

In a regular account, the couple needs $1.88 million on the day they retire. In a Roth account, they need $1.78 million. In a traditional account, they need $1.94 million.

Money needed on the day of retirement, by kind of account

Example couple, twenty-five years of spending, 2026 federal tax rules for a couple filing together, today’s dollars.

The traditional account needs a little more than the regular one. Two things happen at once. Nothing is taxed while the money grows. Everything is taxed when it comes out. To spend $100,000, this couple takes out about $109,000 and pays about $9,000 in tax. Over twenty-five years, the tax avoided while the money grows almost equals the tax paid on the way out.

The Roth account needs the least, because no tax ever touches it. The gap grows as the spending grows. At $250,000 a year, the Roth needs 11 percent less than the regular account.

In the ordinary case, then, the kind of account moves the answer by a few percent. Two situations move it by much more.

Taking money out early

The government adds a ten percent charge to money taken from a traditional account before age fifty-nine and a half. There are exceptions. Someone who leaves an employer in the year they turn fifty-five or later can take money from that employer’s 401(k) without the charge. A schedule of equal payments that runs for years can also avoid it. Without an exception, the charge adds 14 to 22 percent to what our example couple needs. We built this calculator for people between fifty and sixty, so it applies to many of the people we wrote it for.

Taking money out all at once

Imagine the country you choose sells its own government bonds, and they pay more than the American ones. Mexico’s inflation-linked bonds pay about 4.6 percent above inflation, against 2.9 percent on the American ones. You decide to buy them.

You log in to the account. You type in the amount. Two million dollars. Most retirement account providers will not hold Mexican bonds, so the money has to leave the account first. The tax on taking out two million dollars in one year comes to about $650,000.

Thirty-two and a half percent.

At one million dollars, the tax is 28 percent. At three million, it is 34 percent.

You close the window.

You could leave the money where it is. Inside the account, you can buy the American inflation-protected bonds and take out money a little at a time. For our example couple, the tax on those withdrawals is about 8 percent. Roth money is different. After age fifty-nine and a half, once the account is five years old, the withdrawals are tax-free, so the money can leave and go into those Mexican bonds without that bill.

One more rule might come to mind. The government requires withdrawals from traditional accounts starting at age seventy-three or seventy-five. We checked, and it changes nothing here. A plan that spends the money over twenty to thirty years takes out more than the minimum from the first year.

We left some things out. State income tax. Tax from the country where a person lives, which depends on the agreement between that country and the United States. Retirement accounts in other countries, such as British pensions, Canadian registered accounts and Australian superannuation. We want to price those too.

Where does your money sit today, and what did you find when you looked? Tell us in the comments. Someone reading may be standing at the same screen.