Roth IRA Calculator

This user-friendly calculator helps estimate your Roth IRA savings and compares them with a regular taxable account. Ideal for U.S. residents, it offers valuable insights into retirement planning.

What is a Roth IRA?

A Roth IRA is a retirement account that offers tax-free growth and tax-free income during retirement. Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars. This means you won’t get an immediate tax deduction, but you can withdraw your contributions tax-free at any time without penalties. Roth IRAs were established by the Taxpayer Relief Act of 1997 and are named after Senator William Roth.

Opening a Roth IRA

Roth IRA accounts can be opened with various financial institutions, from large firms to online-only investment companies. Each institution has its own unique perks, but all must meet IRS requirements.

Roth IRA Contributions

• Made using after-tax dollars.
• Not tax-deductible, but you may claim the Saver’s Tax Credit on IRS Form 8880, offering up to 50% credit on the first $2,000 in contributions.
• Contributions can be withdrawn tax-free and penalty-free at any time. However, earnings may be subject to tax and/or penalty if withdrawn early (before 59½) or if the account is less than five years old.
• Income thresholds determine eligibility for Roth IRA contributions. For 2023, the threshold is an adjusted gross income of $153,000 for single filers, and $228,000 for married couples filing jointly.
• Contribution limits for 2023 are $6,500 for those under 50 and $7,500 for those 50 and above.
• No age limit for making contributions; even those above 72 can contribute if their income qualifies.
• Contributions for a tax year can be made until April of the next year.

Roth IRA Distribution Details

• Direct contributions can be withdrawn tax-free and penalty-free anytime.
• Tax-free and penalty-free withdrawal on earnings is possible after age 59½ for Roth IRAs older than five years.
• Withdrawals on earnings from Roth IRAs less than five years old may incur taxes and penalties, except under specific conditions.
• No required minimum distribution (RMD) for Roth IRAs; they are the only tax-sheltered retirement plans without RMDs.

Pros of Roth IRA

• Tax-free withdrawals on contributions.
• Liquidity; contributions can be withdrawn tax-free and penalty-free.
• Tax-free retirement income during distributions.
• Many investment options available.
• No age limits for contributions and no RMDs.
• Not reported on FAFSA; doesn’t affect federal student aid eligibility.
• Heir-friendly; surviving heirs receive distributions tax-free.
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Cons of Roth IRA

• Taxes paid upfront on contributions.
• Lower contribution limits compared to 401(k)s.
• Income limits may disqualify high earners.
• Contributions don’t reduce taxable income (but may be eligible for the Saver’s Credit).
• Minimum holding period of five years for tax-free withdrawals on earnings.
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Converting Traditional IRAs to Roth IRAs

• Conversion allows moving funds from a traditional IRA to a Roth IRA regardless of income.
• Considerations include tax implications, lifestyle support, and account maturity.

Ensure a secure financial future by making informed decisions with this Roth IRA Calculator. Plan wisely and enjoy a tax-free retirement!