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Roth IRA VS Traditional IRA Calculator

An IRA is a tax-advantaged retirement account with two main types: Traditional IRA, offering tax-deductible contributions with taxed withdrawals, and Roth IRA, featuring after-tax contributions with tax-free withdrawals in retirement.

Useful Information

Filing Status and Income Tax Rates for 2022-2023

Tax Rate Married Filing Jointly or Qualified Widow(er) Single Head of Household Married Filing Separately
10% $0 to $20,550 $0 to $10,275 $0 to $14,650 $0 to $10,275
12% $20,551 to $83,550 $10,276 to $41,775 $14,651 to $55,900 $10,276 to $41,775
22% $41,776 to $89,075 $41,776 to $89,075 $55,901 to $89,050 $83,551 to $178,150
24% $178,151 to $340,100 $89,076 to $170,050 $89,051 to $170,050 $89,076 to $170,050
32% $340,101 to $431,900 $170,051 to $215,950 $170,051 to $215,950 $170,051 to $215,950
35% $431,901 to $647,850 $215,951 to $539,900 $215,951 to $539,900 $215,951 to $323,925
37% $647,851 or more $539,901 or more $539,901 or more $323,926 or more

Source: IRS

Phaseouts for Roth IRA contributions in 2023:

Filing StatusModified Adjusted Gross Income (MAGI)Contribution Limit
Single, Head of HouseholdLess than $146,000Full contribution
 $146,000 – $161,000Reduced contribution
 More than $161,000No contribution
Married Filing JointlyLess than $230,000Full contribution
 $230,000 – $240,000Reduced contribution
 More than $240,000No contribution
Married Filing SeparatelyLess than $10,000Reduced contribution
 More than $10,000No contribution

Notes:

  • The above limits apply to the 2024 tax year.
  • Contribution limits are phased out proportionally within the ranges.
  • The income ranges for phaseouts are based on Modified Adjusted Gross Income (MAGI).

Source: IRS

Definitions for Roth Vs. Traditional IRA Calculator

1. Roth IRA

  • Definition: A Roth IRA is a type of individual retirement account (IRA) where contributions are made with after-tax dollars. Earnings grow tax-free, and qualified withdrawals during retirement are also tax-free.
  • Use in Calculator: The Roth IRA option helps users estimate the future value of their contributions, taking into account the after-tax nature of deposits.

2. Traditional IRA

  • Definition: A Traditional IRA is a retirement account that allows individuals to contribute pre-tax dollars, which grow tax-deferred. Taxes are paid upon withdrawal during retirement.
  • Use in Calculator: The Traditional IRA option calculates the future value of contributions, factoring in tax-deferred growth and tax liabilities upon withdrawal.

3. Contribution Limit

  • Definition: The maximum amount that can be contributed to an IRA in a given year. For 2024, the limit is $7,000, or $8,000 for individuals aged 50 and older.
  • Use in Calculator: This calculator does not enforce contribution limits, allowing users to explore various hypothetical scenarios.

4. Modified Adjusted Gross Income (MAGI)

  • Definition: MAGI is your Adjusted Gross Income (AGI) with certain deductions and exclusions added back. It determines eligibility for Roth IRA contributions.
  • Use in Calculator: Helps determine the allowable contribution amount based on the user’s income level.

5. Contribution Phaseouts

  • Definition: The range of income levels where the ability to contribute to a Roth IRA gradually phases out until it reaches zero.
  • Use in Calculator: Guides users on whether they can make a full, partial, or no contribution based on their MAGI.

6. Annual Contribution

  • Definition: The amount of money contributed to an IRA each year.
  • Use in Calculator: Used to project the growth of the IRA over time with regular annual inputs.

7. Initial Amount

  • Definition: The starting balance of the IRA when first contributing.
  • Use in Calculator: Establishes the baseline for calculating future growth and potential savings.

8. Rate of Return

  • Definition: The percentage gain or loss on an investment over a specified period.
  • Use in Calculator: Allows users to input an expected annual rate of return to estimate future growth of their IRA.

9. Contribution Tax Rate

  • Definition: The tax rate applied to contributions, relevant for Roth IRAs where contributions are made with after-tax dollars.
  • Use in Calculator: Adjusts the initial and annual contributions to reflect after-tax values for Roth IRAs.

10. Withdrawal Tax Rate

  • Definition: The tax rate applied to withdrawals, relevant for Traditional IRAs where withdrawals are taxed.
  • Use in Calculator: Determines the net amount available to the user after accounting for taxes on withdrawals.

11. Total Contributions

  • Definition: The sum of all contributions made to the IRA over the investment period.
  • Use in Calculator: Helps users understand the total amount invested in their IRA over time.

12. Total Growth

  • Definition: The increase in the value of the IRA due to investment returns.
  • Use in Calculator: Provides an estimate of the earnings generated by the IRA over the specified period.

13. Total Taxes Paid

  • Definition: The total amount of taxes paid on contributions and withdrawals, depending on the type of IRA.
  • Use in Calculator: Helps users understand the tax implications of their IRA contributions and withdrawals.

14. Net Withdrawal

  • Definition: The final amount available for withdrawal after accounting for taxes and penalties, if any.
  • Use in Calculator: Shows the user the net amount they can expect to withdraw from their IRA, providing a realistic picture of retirement savings.
Enhanced IRA Calculator

IRA vs Roth IRA Comparison Calculator

Scenario IRA Type Total Contributions Total Growth Total Taxes Paid Net Withdrawal

Disclaimer

This IRA calculator is designed for educational purposes only. It provides a simplified model for estimating the future value of your IRA based on user inputs such as initial amount, annual contributions, rate of return, and tax rates. While the calculator aims to give you a broad understanding of how different variables affect your retirement savings, it should not be used as a definitive financial planning tool.

What this calculator does:

  • Projects IRA Values: Calculates the projected value of both Roth IRA and Traditional IRA accounts based on the provided inputs.
  • Estimates Key Metrics: Provides estimates for total contributions, total growth, total taxes paid, and net withdrawal amounts.
  • Explores Various Scenarios: Allows users to explore different scenarios by adjusting inputs such as initial amount, annual contributions, and rates of return.

What this calculator does not include:

  • Comprehensive Financial Scenarios: It does not account for all possible financial scenarios, market conditions, or personal circumstances that may affect your investments.
  • Specific Variables: It does not factor in specific variables such as changes in tax laws, inflation, changes in income levels, or unexpected expenses.
  • Contribution Limits: While the IRS sets specific contribution limits for Roth IRAs and Traditional IRAs, this calculator does not enforce these limits to allow users to explore various hypothetical scenarios.

Useful Information

Filing Status and Income Tax Rates for 2022-2023

Tax Rate Married Filing Jointly or Qualified Widow(er) Single Head of Household Married Filing Separately
10% $0 to $20,550 $0 to $10,275 $0 to $14,650 $0 to $10,275
12% $20,551 to $83,550 $10,276 to $41,775 $14,651 to $55,900 $10,276 to $41,775
22% $41,776 to $89,075 $41,776 to $89,075 $55,901 to $89,050 $83,551 to $178,150
24% $178,151 to $340,100 $89,076 to $170,050 $89,051 to $170,050 $89,076 to $170,050
32% $340,101 to $431,900 $170,051 to $215,950 $170,051 to $215,950 $170,051 to $215,950
35% $431,901 to $647,850 $215,951 to $539,900 $215,951 to $539,900 $215,951 to $323,925
37% $647,851 or more $539,901 or more $539,901 or more $323,926 or more

Source: IRS

Phaseouts for Roth IRA contributions in 2023:

Filing StatusModified Adjusted Gross Income (MAGI)Contribution Limit
Single, Head of HouseholdLess than $146,000Full contribution
 $146,000 – $161,000Reduced contribution
 More than $161,000No contribution
Married Filing JointlyLess than $230,000Full contribution
 $230,000 – $240,000Reduced contribution
 More than $240,000No contribution
Married Filing SeparatelyLess than $10,000Reduced contribution
 More than $10,000No contribution

Notes:

  • The above limits apply to the 2024 tax year.
  • Contribution limits are phased out proportionally within the ranges.
  • The income ranges for phaseouts are based on Modified Adjusted Gross Income (MAGI).

Source: IRS

Definitions for Roth Vs. Traditional IRA Calculator

1. Roth IRA

  • Definition: A Roth IRA is a type of individual retirement account (IRA) where contributions are made with after-tax dollars. Earnings grow tax-free, and qualified withdrawals during retirement are also tax-free.
  • Use in Calculator: The Roth IRA option helps users estimate the future value of their contributions, taking into account the after-tax nature of deposits.

2. Traditional IRA

  • Definition: A Traditional IRA is a retirement account that allows individuals to contribute pre-tax dollars, which grow tax-deferred. Taxes are paid upon withdrawal during retirement.
  • Use in Calculator: The Traditional IRA option calculates the future value of contributions, factoring in tax-deferred growth and tax liabilities upon withdrawal.

3. Contribution Limit

  • Definition: The maximum amount that can be contributed to an IRA in a given year. For 2024, the limit is $7,000, or $8,000 for individuals aged 50 and older.
  • Use in Calculator: This calculator does not enforce contribution limits, allowing users to explore various hypothetical scenarios.

4. Modified Adjusted Gross Income (MAGI)

  • Definition: MAGI is your Adjusted Gross Income (AGI) with certain deductions and exclusions added back. It determines eligibility for Roth IRA contributions.
  • Use in Calculator: Helps determine the allowable contribution amount based on the user’s income level.

5. Contribution Phaseouts

  • Definition: The range of income levels where the ability to contribute to a Roth IRA gradually phases out until it reaches zero.
  • Use in Calculator: Guides users on whether they can make a full, partial, or no contribution based on their MAGI.

6. Annual Contribution

  • Definition: The amount of money contributed to an IRA each year.
  • Use in Calculator: Used to project the growth of the IRA over time with regular annual inputs.

7. Initial Amount

  • Definition: The starting balance of the IRA when first contributing.
  • Use in Calculator: Establishes the baseline for calculating future growth and potential savings.

8. Rate of Return

  • Definition: The percentage gain or loss on an investment over a specified period.
  • Use in Calculator: Allows users to input an expected annual rate of return to estimate future growth of their IRA.

9. Contribution Tax Rate

  • Definition: The tax rate applied to contributions, relevant for Roth IRAs where contributions are made with after-tax dollars.
  • Use in Calculator: Adjusts the initial and annual contributions to reflect after-tax values for Roth IRAs.

10. Withdrawal Tax Rate

  • Definition: The tax rate applied to withdrawals, relevant for Traditional IRAs where withdrawals are taxed.
  • Use in Calculator: Determines the net amount available to the user after accounting for taxes on withdrawals.

11. Total Contributions

  • Definition: The sum of all contributions made to the IRA over the investment period.
  • Use in Calculator: Helps users understand the total amount invested in their IRA over time.

12. Total Growth

  • Definition: The increase in the value of the IRA due to investment returns.
  • Use in Calculator: Provides an estimate of the earnings generated by the IRA over the specified period.

13. Total Taxes Paid

  • Definition: The total amount of taxes paid on contributions and withdrawals, depending on the type of IRA.
  • Use in Calculator: Helps users understand the tax implications of their IRA contributions and withdrawals.

14. Net Withdrawal

  • Definition: The final amount available for withdrawal after accounting for taxes and penalties, if any.
  • Use in Calculator: Shows the user the net amount they can expect to withdraw from their IRA, providing a realistic picture of retirement savings.

Comparing Traditional IRA's Vs Roth IRA's

Roth IRA vs Traditional IRA Comparison

Roth IRA

Tax Treatment: Contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

Traditional IRA

Tax Treatment: Contributions may be tax-deductible, and withdrawals are taxed as ordinary income.

Roth IRA

Eligibility: Contributions are limited by income; single filers must have a MAGI of less than $146,000 for full contributions in 2024.

Traditional IRA

Eligibility: No income limits for contributions, but tax deductibility may be limited if covered by a retirement plan at work.

Roth IRA

Required Minimum Distributions: Not required during the account holder’s lifetime.

Traditional IRA

Required Minimum Distributions: Required starting at age 72.

Roth IRA

Withdrawal Rules: Contributions can be withdrawn at any time without taxes or penalties; earnings can be withdrawn tax-free after age 59½ and meeting the 5-year rule.

Traditional IRA

Withdrawal Rules: Withdrawals before age 59½ may be subject to taxes and a 10% penalty, with some exceptions.

Roth IRA

Tax Benefits: Tax-free growth and withdrawals.

Traditional IRA

Tax Benefits: Tax-deferred growth and potential tax-deductible contributions.

Roth IRA

Best For: Individuals who expect to be in a higher tax bracket during retirement.

Traditional IRA

Best For: Individuals who expect to be in a lower tax bracket during retirement.

Chart Comparisons of Roth IRA Vs Traditional IRA

 

Young Professional: Roth IRA vs. Traditional IRA

In this scenario, you’re 22, just starting your career, and thinking about retirement. You’ve got $6,000 to invest, no plans to add more annually, and you’re aiming for an 8% annual return until you retire at 60. Your contribution tax rate is 22%, while you expect your withdrawal tax rate to be 32% because you will be older and more developed in your career. The outcomes for both a Roth IRA and a Traditional IRA in this scenario are illustrated in the chart provided.

Roth IRA

With a Roth IRA, you pay taxes upfront. After the 22% tax rate, your $6,000 investment is reduced to $4,680. This amount grows tax-free over the years to $82,486.29. The good news is that at retirement, you can withdraw the entire amount of $87,166.29 tax-free. You’ve paid $1,320 in taxes initially, but nothing more after that.

Traditional IRA

A Traditional IRA lets you invest the full $6,000 upfront, deferring taxes until you retire. This amount grows to a robust $105,751.65 by retirement. When you withdraw, you’ll pay the 32% tax rate, amounting to $35,760.529 in taxes. Despite this significant tax bill, you still end up with a net withdrawal of $75,991.12.

Which is Better?

In this scenario, the Roth IRA is the better option. Despite the upfront tax hit, the Roth IRA’s tax-free growth and withdrawals result in a higher net withdrawal compared to the Traditional IRA. Additionally, since you expect your withdrawal tax rate to be higher at retirement (32%) compared to your current rate (22%), paying taxes now with the Roth IRA proves to be more beneficial. The chart visually compares the growth of each IRA type, clearly demonstrating the advantage of the Roth IRA under these tax conditions.

 

Steady Tax: Roth IRA vs. Traditional IRA

In this scenario, you’re 22, just starting your career, and thinking about retirement. You’ve got $6,000 to invest, no plans to add more annually, and you’re aiming for an 8% annual return until you retire at 60. Both your contribution and withdrawal tax rates are expected to stay at a steady 22% until you withdraw. The outcomes for both a Roth IRA and a Traditional IRA in this scenario are illustrated in the chart provided.

Roth IRA

With a Roth IRA, you pay taxes upfront. After the 22% tax rate, your $6,000 investment is reduced to $4,680. This amount grows tax-free over the years to $82,486.29. The good news is that at retirement, you can withdraw the entire amount of $87,166.29 tax-free. You’ve paid $1,320 in taxes initially, but nothing more after that.

Traditional IRA

A Traditional IRA lets you invest the full $6,000 upfront, deferring taxes until you retire. This amount grows to a robust $105,751.65 by retirement. When you withdraw, you’ll pay the 22% tax rate, amounting to $24,585.36 in taxes. Despite this, you end up with a net withdrawal of $87,166.29.

Which is Better?

In this scenario, both the Roth IRA and Traditional IRA yield the same net withdrawal amount of $87,166.29 at retirement age. The choice between the two depends on your preference for paying taxes upfront or deferring them until retirement. The chart visually compares the growth of each IRA type, demonstrating how both accounts perform similarly under steady tax rates. The decision boils down to whether you prefer to pay taxes now or later, as the net result is the same.

High Initial Tax Rate: Roth IRA vs. Traditional IRA

In this scenario, you’re 22, you just landed a high paying job right out of college, and are already thinking about retirement. You’ve got $6,000 to invest, with no plans to add more annually, and you’re aiming for an 8% annual return until you retire at 60. Let’s factor in taxes: a hefty 32% on contributions currently but a lighter 22% when you withdraw.

Roth IRA

With a Roth IRA, you pay taxes upfront. Your $6,000 investment is reduced to $4,080 after the 32% tax bite, but it grows tax-free over the years to $71,911.12. The good news? When you retire, you withdraw every penny of that $75,991.12 tax-free. You’ve paid $1,920 in taxes initially, but nothing more after that.

Traditional IRA

On the flip side, a Traditional IRA lets you invest the full $6,000 upfront, deferring taxes until you retire. This grows to a robust $105,751.65 by retirement. When you withdraw, you’ll pay the 22% tax rate, amounting to $24,585.36 in taxes. Despite this, you end up with a net withdrawal of $87,166.29.

Which is Better?

In this scenario, the Traditional IRA shines. Even though you’re hit with a significant tax bill at retirement, you walk away with more money compared to the Roth IRA. The Traditional IRA’s larger initial investment and tax-deferred growth give it an edge, leading to a higher net withdrawal. Additionally, since you are withdrawing the money at a lower tax rate (22%) compared to the higher tax rate (32%) you paid on your Roth IRA contributions, you save on taxes overall. This strategy of deferring taxes until retirement, when you expect to be in a lower tax bracket, proves more beneficial here.

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