IRA Calculator

The IRA calculator can be used to evaluate and compare Traditional IRAs, SEP IRAs, SIMPLE IRAs, Roth IRAs, and regular taxable savings. For comparison purposes, values are shown in before-tax and after-tax amounts.

Account Information

$
$

Age Information

Rate Information

%
%
%

What is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged investment account designed to help you save for retirement. There are several types of IRAs, each with different tax treatment and benefits.

Types of IRAs

Traditional IRA

Contributions may be tax-deductible, reducing your current taxable income. Earnings grow tax-deferred, and withdrawals in retirement are taxed as ordinary income.

Roth IRA

Contributions are made with after-tax dollars (no immediate tax benefit), but earnings grow tax-free and qualified withdrawals in retirement are completely tax-free.

SEP IRA (Simplified Employee Pension)

Designed for self-employed individuals and small business owners. Tax treatment is similar to Traditional IRAs, but with higher contribution limits based on income.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

A retirement plan for small businesses with 100 or fewer employees. Employees can contribute, and employers are required to make contributions. Tax treatment is similar to Traditional IRAs.

The IRA Growth Formula

The formula for calculating the future value of any retirement account is:

$$FV = P(1 + r)^n + C \times \frac{(1 + r)^n - 1}{r}$$

Where:

  • FV: Future Value of the account
  • P: Present Value (current balance)
  • r: Rate of return (annual)
  • n: Number of years until retirement
  • C: Regular contribution amount

How to Use This Calculator

Our IRA calculator allows you to compare different types of retirement accounts based on your specific circumstances:

  1. Enter your current account balance and annual contribution amount.
  2. Input your current age and expected retirement age.
  3. Set your expected rate of return, current tax rate, and expected tax rate in retirement.
  4. Click 'Calculate' to see a comparison of different account types and their projected values at retirement.

Tax Treatment of Different IRAs

Understanding the tax implications of each type of IRA is crucial for making an informed decision:

Contributions

Traditional, SEP, and SIMPLE IRAs offer tax deductions for contributions, reducing your current taxable income. Roth IRA contributions are made with after-tax dollars, providing no immediate tax benefit.

Account Growth

All IRA types allow your investments to grow without being taxed each year (unlike taxable accounts where you pay taxes annually on dividends, interest, and realized capital gains).

Withdrawals in Retirement

Traditional, SEP, and SIMPLE IRA withdrawals are taxed as ordinary income. Qualified Roth IRA withdrawals are completely tax-free. All types may incur penalties for early withdrawals before age 59½, with certain exceptions.

Contribution Limits

Each type of IRA has different contribution limits, which may change annually:

Traditional and Roth IRAs

For 2023, the contribution limit is $6,500 for those under age 50, and $7,500 for those 50 and older (including a $1,000 catch-up contribution).

SEP IRA

Employers can contribute up to 25% of an employee's compensation or $66,000 (for 2023), whichever is less.

SIMPLE IRA

Employees can contribute up to $15,500 for 2023 ($19,000 for those 50 and older). Employers must either match employee contributions up to 3% of compensation or contribute 2% of compensation for all eligible employees.

Frequently Asked Questions

Which type of IRA is best for me?

It depends on your current tax situation and expectations for retirement. Traditional IRAs are generally better if you expect to be in a lower tax bracket in retirement. Roth IRAs are advantageous if you expect to be in a higher tax bracket in retirement or want tax-free withdrawals.

Can I contribute to multiple IRA types in the same year?

Yes, but your total contributions to Traditional and Roth IRAs combined cannot exceed the annual limit ($6,500 for 2023, or $7,500 if you're 50 or older). SEP and SIMPLE IRAs have separate limits.

Are there income limits for IRA contributions?

Roth IRAs have income limits that may reduce or eliminate your ability to contribute directly. Traditional IRA contributions are not limited by income, but the tax deductibility may be limited if you (or your spouse) have a retirement plan at work.

What happens if I withdraw money from my IRA before retirement?

Early withdrawals (before age 59½) generally incur a 10% penalty in addition to any applicable taxes, with certain exceptions. Roth IRA contributions (but not earnings) can be withdrawn at any time without penalty.

Can I convert from one IRA type to another?

Yes, you can convert a Traditional IRA to a Roth IRA (but not vice versa). This is called a Roth conversion, and you'll need to pay income tax on the converted amount in the year of conversion.