This Roth IRA calculator compares the tax consequences of keeping your traditional IRA vs....show more instructions
Should You Keep Your Traditional IRA Or Convert To A Roth IRA?
IRAs are popular retirement savings plans – but should you choose a Roth or Traditional?
This Roth vs Traditional IRA calculator will help you compare the tax and investment consequences of each option so that you can determine the best account for you.
Similarly, this Roth IRA calculator will highlight the consequences of converting from a Traditional IRA to a Roth IRA so that you can see the financial consequences and make an appropriate decision.
It simplifies all the variables and complicated math into easy-to-understand results.
Related: How Your Financial Advisor is Taking 75% of Your Retirement Income (or More!) Video, PDF download, or Audio.
An IRA is an individual retirement plan – also called an individual retirement arrangement – that provides tax advantages for U.S. taxpayers saving for retirement.
IRAs are provided by many financial institutions, including some employers. Contributions are sometimes based on and limited by employment compensation, which includes wages, salaries, fees, tips, bonuses, commissions, taxable alimony, and separate maintenance payments.
Types of IRA's include both Traditional and Roth IRAs. Each has eligibility restrictions based on your income or employment status. IRAs have contribution limits and penalties if you take out money before the pre-determined retirement age. Find the best IRA account type for you by using the Roth IRA conversion calculator above.
Differences Between Roth And Traditional IRAs
Money in Traditional and Roth IRAs grow tax-free – while the money is in the account. The type of individual retirement account you choose has a significant impact on you and your family’s long-term savings so it is important to understand the differences between Traditional and Roth IRAs:
- Income Taxes – With a Traditional IRA, you usually get an up-front tax deduction but then have to pay the taxes when you withdraw money from your account. With a Roth IRA, it's the exact opposite – you pay the taxes on your earned income up-front, but there are no taxes when you withdraw your savings.
- Age Eligibility – With a Roth IRA, anybody at any age with employment compensation can sign up for an account. But for the Traditional IRA, anybody with employment compensation can sign up for an account as long as they are not older than 70 ½.
- Income Eligibility – One factor that determines whether you should fund a Roth or Traditional IRA is your income. There is no income limit for a Traditional IRA. For the Roth IRA, your contributions may be limited for higher income earners. Check the latest IRS rules for current limits because they change regularly.
- Distribution Rules – At the age of 70 ½, Traditional IRAs require you to start taking required minimum distributions. Roth IRAs don’t dictate withdrawals during the owner’s lifetime. Roth IRA withdrawals are tax-free and penalty-free. So, if you don’t need the money, you can leave your contributions in a Roth IRA for as long as you want. For both Traditional and Roth IRAs, owners can begin withdrawing their contributions at age 59 ½ without any penalty. However, for Traditional IRAs, distributions will be treated as ordinary income and may be subjected to an early-distribution penalty if the owner withdraws before reaching age 59 ½.
Want to make a quick comparison between the two IRA plans? Plug in your own numbers for the two types of accounts using our Roth IRA calculator. You'll be able to compare a Traditional IRA with a Roth IRA and view results at the time of conversion, from now until retirement age, and during retirement – at every point during the investment process.
Armed with the knowledge of how a conversion will help or hurt your investment results, you'll be well prepared to make the most appropriate decision to build more wealth.
A few minutes of research can radically change your retirement planning strategy for the better. I hope this calculator helps you.
Roth IRA Calculator Terms & Definitions:
- Taxes – A compulsory fee charged by the government from workers' income, business, and investment profits.
- Contribution – Money added to an account, such as an IRA.
- Retirement – The action or event of leaving one's job or ceasing to work.
- Individual Retirement Account (IRA) – an individual retirement account – also called an individual retirement arrangement – that provides tax advantages for retirement savings.
- Annual Contribution Limits – The amount of money per year you can contribute to your IRA as determined by law.
- Distributions and Withdrawals – Any amount of money taken from your IRA account.
- Conversion – Moving money from one type of account (such as a Traditional IRA) to another type of account (such as a Roth IRA).
Related Retirement Calculators:
- Ultimate Retirement Calculator: It's called the ultimate retirement calculator because it does everything the others do and a whole lot more.
- Retirement Withdrawal Calculator: How much can I afford to withdraw each month given the retirement savings I have accumulated – both before and after inflation?
- Simple Retirement Savings Calculator: How long will it take me to reach my retirement savings goal given my current savings balance and my monthly deposits? Solves for time.
- Retirement Investment Calculator: How much investment should I make each month to reach my desired retirement savings goal given my current savings balance and expected retirement date? Solves for amount to invest.
- Millionaire Calculator – How To Retire A Millionaire: So you wanna be a millionaire? This fun calculator will tell you when it will happen and what a million dollars will be worth by then after adjusting for inflation.
- How To Save Money For Retirement – The Easy Way!: If you have problems saving for retirement then this calculator will show you an easy way.
- 401k Calculator: If I deposit a certain amount in my 401(k) each month what will it grow to by any future point in time?
- 401(k) Early Withdrawal Calculator: What is the financial cost of taking a distribution from my 401(k) or IRA versus rolling it over into another tax deferred account?
- Taxable vs. Tax Deferred Investment Growth Calculator: How will my future value and investment return differ between taxable and tax deferred investing?
- Interest Calculator – Simple & Compound Interest: Compares simple monthly interest income to long term compound growth for surprising results.
- Present Value of Annuity Calculator: What is the present value of a series of equal cash flows to be received in the future?
Here’s how to make more by losing less…
If you're looking for an investment strategy that goes beyond "buy and hold" while controlling risk and requiring as little as 30 minutes a month to manage, this is the answer. It’s so good I wish I had built it myself. Take back control of your portfolio and start getting results today.