The short answer
Starting at 30 with $0 saved, contributing the 2024 limit of $7,000 a year at 7% until age 65 projects to $1,001,526.18 — past the million-dollar mark. Only $245,000 of that is your own money; $756,526.18 is investment growth. The same contributions in a taxable account instead of an IRA would reach just $637,814.11 — a $363,712.07 gap purely from tax-deferred compounding.
Key takeaways
- $7,000/year from 30 to 65 at 7% grows to $1,001,526.18 — 75.5% of that is investment gains, not contributions.
- Fully deductible contributions at a 22% tax rate save $53,900.00 in taxes over the 35-year contribution period.
- The same contributions in a taxable account reach only $637,814.11 — the Traditional IRA's tax-deferred growth adds $363,712.07 in this example.
- Saving at 22% now and withdrawing at an assumed 15% in retirement creates $17,150.00 in "tax arbitrage" — paying tax at a lower rate than the deduction was worth.
How $7,000 a year becomes $1 million
Starting from $0 at age 30, contributing the full 2024 limit of $7,000 every year at an assumed 7% return until age 65 (35 years):
Total contributed over 35 years: $245,000.00
Total investment gains: $756,526.18
Projected balance at 65: $1,001,526.18
Three-quarters of the final balance is growth, not money you contributed — a reminder that starting decades before retirement matters more than any single year's contribution amount. Waiting even five or ten years to start would give compounding meaningfully less time to work, even at the same contribution level.
The upfront tax deduction, and tax arbitrage
Without a workplace retirement plan, Traditional IRA contributions are fully deductible regardless of income. At a 22% current tax rate on $245,000 in total contributions:
Total tax savings from deductions: $53,900.00
Tax arbitrage (22% now vs 15% assumed in retirement): $17,150.00
The deduction happens now, but withdrawals in retirement are taxed as ordinary income — at 15% in this example. Because that retirement rate is lower than the 22% rate the deduction was taken at, the difference ("tax arbitrage") becomes extra value. If the retirement tax rate turned out higher than the current rate instead, that arbitrage would flip negative, which is the central bet behind choosing Traditional over Roth.
Traditional IRA vs a plain taxable account
The comparison account here assumes after-tax contributions (no deduction) and a return reduced by a 15% capital gains drag each year — a reasonable proxy for a regular brokerage account:
Traditional IRA balance at 65: $1,001,526.18
Taxable account balance at 65: $637,814.11
IRA advantage: $363,712.07
The gap comes from two compounding effects working together: the taxable account starts each year with less to invest (contributions are already after-tax), and its annual growth is dragged down by the assumed capital gains rate every single year, rather than deferred to one withdrawal decades later. Even after accounting for the eventual tax on IRA withdrawals ($851,297.26 after-tax at a 15% retirement rate), the IRA still comes out well ahead.
Related calculators
- Roth IRA Calculator — compare after-tax contributions and tax-free withdrawals against this Traditional IRA math.
- 401(k) Calculator — add an employer match to the retirement savings picture.
- Retirement Calculator — combine multiple accounts into one full retirement income plan.