Roth IRA vs. Traditional IRA Calculator
Roth IRA vs. Traditional IRA Calculator Definitions
- Current age
- Your current age.
- Annual contribution
- The amount you will contribute to an IRA each year. This calculator assumes that you make your contribution at the beginning of each year. The maximum annual IRA contribution is $5,500 in 2017. It is important to note that this is the maximum total contributed to all of your IRA accounts. The contribution limit increases with inflation in $500 increments; an annual change to the contribution limit only occurs if the cumulative effect of inflation since the last adjustment is $500 or more.
If you are 50 or older you can make an additional 'catch-up' contribution of $1,000. The 'catch-up' contribution amount of $1,000 remains unchanged for 2017. In order to qualify for the 'catch-up' contribution, you must turn 50 by the end of the year in which you are making the contribution.
You can no longer make contributions to a Traditional IRA in the year you reach 70 1/2.
It is important to note that Roth IRA contributions are limited for higher incomes. If your income falls in a 'phase-out' range you are allowed only a prorated Roth IRA contribution. If your income exceeds the phase-out range, you do not qualify for any Roth IRA contribution. The table below summarizes the income 'phase-out' ranges for Roth IRAs.
Roth IRA 2017 Contribution Phaseout Tax Filing Status Income Phase-Out Range Married filing jointly or head of household $186,000 to $196,000 Single $118,000 - $133,000 Married filing separately $0 - $10,000
*For the purposes of this calculator, we assume you are not Married filing separately and contributing to a Roth IRA.
Starting in 2010 high income individuals will have the option to make non-deductible Traditional IRA contributions and then immediately convert them to a Roth IRA. This can effectively eliminate the income phase-out for Roth IRA contributions. This option for Roth IRA contributions may or may not be available in later years depending on future changes to the IRA law. This calculator assumes that you will not be taking advantage of this option.
- Expected rate of return
- The annual rate of return for your IRA. This calculator assumes that your return is compounded annually and your contributions are made at the beginning of each year. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending Dec. 1st, 2015, had an annual compounded rate of return of 7.76%, including reinvestment of dividends. From January 1970 through to Dec. 2015, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.5% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that Separate Account investment funds and/or investment companies may charge.
- Age of retirement
- Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your IRA. So if you retire at age 65, your last contribution occurs when you are actually 64.
- Current tax rate
- The current marginal income tax rate you expect to pay on your taxable investments.
- Retirement tax rate
- The marginal tax rate you expect to pay on your investments at retirement.
- Adjusted gross income
- Your adjusted gross income from your tax return. This is used to determine whether or not your annual contributions might be tax deductible.
- Check the box if you are married. This is used to determine whether or not your annual contributions might be tax deductible.
- Employer plan
- Check the box if you have an employer-sponsored retirement plan, such as a 401(k) or pension. This is used to determine whether or not your annual contributions might be tax deductible.
- Maximize contributions
- Check this box if you plan to contribute the maximum amount allowed to your account each year. This includes the additional catch-up contribution available when you are age 50 or over.
- Total non-deductible contributions
- The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are often tax deductible. However, if you have an employer-sponsored retirement plan, such as a 401(k), your tax deduction may be limited. This calculator automatically determines if your tax deduction is limited by your income. However, there are two unusual situations not automatically accounted for where additional tax phase-outs are applied. First, if your spouse has an employer-sponsored retirement plan but you do not, your tax deduction is phased out between incomes of $186,000 to $196,000. Second, if you are married filing separately and have an employer-sponsored retirement plan, your tax deduction is phased out between incomes of $0 to $10,000.
2017 Traditional IRA Deduction Phase-Out Ranges Tax Filing Status Income Phase-Out Range Married filing jointly $99,000 - $119,000 Single or Head of Household $62,000 - $72,000 Married filing separately $0 - $10,000
- Total contributions
- The total amount contributed to your IRA.
- IRA total after taxes
- For the Roth IRA, this is the total value of the account. For the Traditional IRA, this is the sum of two parts: 1) The value of the account after you pay income taxes on all earnings and tax deductible contributions and 2) additional earnings from the re-invested tax savings.
Please note that for distributions to include earnings that are tax free the Roth IRA must be opened for 5 tax years. Eligible tax free distributions include those taken for death or disability, after age 59-1/2, or for a first time home purchase.
Please consult with a tax professional regarding IRA eligibility, tax deductions and your specific situation.