Roth IRA Calculator
This calculator estimates the balances of Roth IRA savings and compares them with regular taxable account. It is mainly intended for use by U.S. residents.
Enter your information and click Calculate to see results.
What is a Roth IRA?
A Roth IRA is a retirement savings account that allows your money to grow tax-free. You contribute after-tax dollars to a Roth IRA, and qualified withdrawals in retirement are completely tax-free.
This tax-free growth and withdrawal feature makes Roth IRAs particularly attractive for many investors, especially those who expect to be in a higher tax bracket during retirement.
Roth IRA vs. Traditional IRA
Unlike traditional IRAs, where contributions are tax-deductible but withdrawals are taxed as income, Roth IRA contributions are made with after-tax dollars. The advantage is that all qualified withdrawals, including earnings, are completely tax-free during retirement.
The Roth IRA Growth Formula
The formula for calculating the future value of an investment 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 Roth IRA calculator is designed to help you compare long-term growth between a Roth IRA and a regular taxable account:
- Enter your current balance and annual contribution amount.
- Input your current age and expected retirement age.
- Set your expected annual rate of return and your marginal tax rate.
- Click 'Calculate' to see the comparison between a Roth IRA and a taxable account.
Roth IRA Contribution Limits
The IRS sets limits on how much you can contribute to a Roth IRA each year. These limits may change annually.
Current Contribution Limits
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).
Income Limits
There are also income limits for Roth IRA eligibility. For 2023, single filers with modified adjusted gross income (MAGI) below $138,000 can contribute the full amount. The contribution limit begins to phase out at $138,000 and is eliminated at $153,000. For married couples filing jointly, the phase-out range is $218,000 to $228,000.
Tax Benefits of Roth IRA
Roth IRAs offer significant tax advantages compared to regular taxable investment accounts:
Tax-Free Growth
With a Roth IRA, your investments grow tax-free. This means you don't pay taxes on dividends, interest, or capital gains as they accumulate within the account.
Tax-Free Withdrawals
Perhaps the biggest advantage is that qualified withdrawals in retirement are completely tax-free. In contrast, withdrawals from a taxable account may be subject to capital gains taxes, and any interest or dividends earned annually are taxed in the year they're received.
Frequently Asked Questions
What makes a Roth IRA different from other retirement accounts?
Roth IRAs are unique because contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free. Traditional IRAs and 401(k)s typically offer tax deductions on contributions but tax withdrawals as income.
Can I withdraw money from my Roth IRA before retirement?
Yes, you can withdraw your contributions (but not earnings) at any time without penalties or taxes. Earnings can be withdrawn tax-free if you're at least 59½ and the account has been open for at least five years.
What happens if I contribute too much to my Roth IRA?
If you contribute more than the annual limit, you may be subject to a 6% excess contribution tax each year until you correct the error. You can fix this by withdrawing the excess amount before your tax filing deadline.
Can I contribute to a Roth IRA if I have a 401(k) or other retirement plan?
Yes, you can contribute to both a Roth IRA and a 401(k) or other employer-sponsored retirement plan in the same year, as long as you meet the Roth IRA's income eligibility requirements.
What kind of investments can I hold in a Roth IRA?
Roth IRAs can hold a wide variety of investments, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), and even some alternative investments. The specific options depend on your IRA custodian.