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Roth IRA calculator

Retirement calculators

What is a Roth IRA?

A Roth IRA is an Individual Retirement Account (IRA) that allows your money to grow tax-free, and you can make qualified withdrawals on a tax-free basis under specific rules. An IRA is a tax-advantaged savings plan designed to help you save for retirement.

The difference between a Roth IRA and a traditional IRA are as follows:

  • Roth IRAs deposits are made with after-tax dollars while traditional IRAs are funded with pre-tax dollars.

  • Roth IRA contributions are not tax-deductible, but traditional IRAs' contributions are tax-deductible.

  • You don't pay income tax when you withdraw money from your Roth IRA during retirement, but you do pay when you withdraw from a traditional IRA.

  • You can leave money in your Roth IRA or continue to contribute from your income at any age. But, you must start taking money or required minimum distributions (RMDs) from your traditional IRA at 72 years old.

  • You are eligible to contribute to a Roth IRA even though you have a 401(k) plan. For a given year, you may be ineligible to contribute to a Roth IRA but still be eligible to contribute to a traditional IRA.

How to use Roth IRA Calculator?

To use a Roth IRA calculator, you need to input your details which include; your current age, annual salary, current Roth IRA balance, contribution type (whether you want to contribute the maximum amount, a certain amount annually, or a certain percentage of your income), years until retirement, tax status, expected income increase, expected annual return, tax rate during retirement, and expected inflation rate.

After you plug in these details, the calculator will estimate how much your Roth IRA will be worth at retirement and the annual income you may get from it.

An actual example to demonstrate the calculator

Let's consider a hypothetical example:

Meet John who is 30 years old. John earns $55,000 annually, his current Roth IRA balance is $0, and he chooses to contribute the maximum amount annually. He has 35 years until he retires, his tax status is joint without dependents, John's annual income increases by 3%. He expects an annual return rate of 6%, tax rate during retirement to be at 15% and the expected inflation rate is 2%.

John inputs these details into the Roth IRA calculator which then calculates his expected balances, contribution, and distributions. According to these figures, when John retires at 65, his Roth IRA balance would be approximately $1,430,259 (in today's dollars), he would have contributed about $189,000, and could withdraw approximately $70,176 per year during his retirement, tax-free.

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