Individual Retirement Accounts (IRAs) are essential tools for long-term wealth building outside of employer-sponsored plans. This calculator helps you compare Traditional and Roth IRAs and project your account balance at retirement.
How This Calculator Works
This calculator projects your IRA growth based on:
- Initial Balance: Your current IRA savings
- Annual Contribution: What you plan to add each year (up to the IRS limit)
- Annual Return Rate: Your expected investment growth percentage
- Current Age & Retirement Age: The duration of your investment timeline
- Tax Strategy: Traditional (pre-tax) vs. Roth (after-tax)
The Formula Explained
Growth follows the standard compound interest formula:
Future Value = P(1 + r)^n + [PMT × ((1 + r)^n - 1) / r]
Where:
- P = Current Balance
- r = Annual return rate
- n = Years to retirement
- PMT = Annual contribution
The calculation also estimates the tax benefits (immediate tax deduction for Traditional vs. tax-free withdrawal for Roth).
Step-by-Step Example
Scenario: Starting at Age 25 with $0
- Contribution: $7,000 / year (2024 Limit)
- Return Rate: 8%
- Goal Age: 65 (40 years)
| Milestone | Total Contributions | Balance (8% Return) |
| Age 35 | $70,000 | $112,000 |
| Age 45 | $140,000 | $355,000 |
| Age 55 | $210,000 | $880,000 |
| Age 65 | $280,000 | $2,020,000 |
By maxing out your IRA starting at age 25, you could become a multi-millionaire by retirement!
Frequently Asked Questions
What is the difference between a Traditional and Roth IRA?
A Traditional IRA offers a tax deduction today; your money grows tax-deferred, and you pay income tax when you withdraw it in retirement. A Roth IRA offers no tax deduction now, but your money grows tax-free, and all qualified withdrawals in retirement are completely tax-free.
Which is better: Traditional or Roth?
It depends on your current and future tax brackets. If you are in a low tax bracket now but expect to be in a higher one in retirement, a Roth IRA is usually better. If you are in a high tax bracket now and expect to be in a lower one later, a Traditional IRA provides immediate tax savings.
What are the IRA contribution limits for 2024?
The 2024 annual contribution limit is $7,000 for those under 50. If you are 50 or older, you can contribute an additional $1,000 as a "catch-up contribution," for a total of $8,000 per year. These limits apply across all your Traditional and Roth IRAs combined.
Are there income limits for Roth IRA contributions?
Yes. For 2024, if you are single and earn more than $161,000 (or $240,000 if married filing jointly), you cannot contribute directly to a Roth IRA. However, you may be able to use a "Backdoor Roth IRA" strategy by contributing to a Traditional IRA and then converting it.
When can I withdraw money from an IRA?
You can generally withdraw funds penalty-free after age 59½. Early withdrawals from a Traditional IRA are subject to income taxes plus a 10% penalty. For a Roth IRA, you can withdraw your contributions (but not earnings) at any time tax-free and penalty-free.
What is a "Backdoor Roth IRA"?
A Backdoor Roth is a two-step process to get money into a Roth IRA when your income is too high to contribute directly. You make a non-deductible contribution to a Traditional IRA and immediately convert it to a Roth IRA. There are no income limits on conversions, but you must follow specific tax rules (Pro-Rata Rule).
What are Required Minimum Distributions (RMDs)?
RMDs are mandatory withdrawals you must start taking from Traditional IRAs at age 73 (rising to 75 in 2033). If you don't take them, you face significant penalties. Roth IRAs do not have RMDs during the original owner's lifetime, allowing your money to grow tax-free indefinitely.
Can I have both an IRA and a 401(k)?
Yes. You can contribute to both an employer-sponsored plan (like a 401k) and an individual IRA. However, your ability to deduct Traditional IRA contributions may be limited if your income is high and you have access to a retirement plan at work. Roth IRA contribution rules remain the same.
Key Points to Remember
- Max it out: Aim to hit the $7,000 limit every year
- Start early: Compounding needs decades to work its magic
- Automate: Set up a monthly transfer of $583 to hit the annual goal
- Low-cost funds: Invest in low-fee index funds within your IRA
- Don't touch it: Withdrawing early triggers steep penalties and halts growth