My Genius Calculator
Back to Finance & Money
Finance & Money

Roth IRA Calculator

Compare Roth IRA growth against a standard taxable investment account.

Roth IRA Growth Calculator

%
%

Results

Enter your details to see the results.

Loading...

Plan for a Tax-Free Retirement with a Roth IRA

Our Roth IRA Calculator helps you project the future value of your contributions and compare its tax-free growth against a standard taxable investment account.

What is a Roth IRA?

A Roth IRA is an Individual Retirement Arrangement that allows for tax-free growth and tax-free withdrawals in retirement. Unlike a Traditional IRA where contributions may be tax-deductible, Roth IRA contributions are made with money you've already paid taxes on. The significant advantage is that once you meet the requirements, all of your future withdrawals, including all the investment earnings, are completely tax-free.

How It Works: Taxable vs. Tax-Free Growth

The calculator projects and compares the growth of your money in two different environments:

  • Roth IRA: Your after-tax contributions are invested and grow. The calculator shows the final balance, which is entirely yours to keep in retirement, tax-free.
  • Taxable Account: Your after-tax contributions are invested, but the gains (interest, dividends, capital gains) are taxed each year. This "tax drag" reduces the amount of money available to compound, resulting in a lower final balance compared to the Roth IRA.

Interpreting the Results

The chart and table clearly illustrate the powerful advantage of tax-free growth. You will see the **Roth IRA Balance** significantly outperform the **Taxable Account Balance** over the long term. The difference between the two final balances represents the total amount of "tax drag" you avoided by using a Roth IRA.

Common Roth IRA Myths

  1. Myth 1: You need a financial advisor to open an IRA. You can easily open a Roth IRA online in minutes with a low-cost brokerage firm like Vanguard, Fidelity, or Charles Schwab.
  2. Myth 2: I can't access my money until I'm 59½. This is only partially true. You can withdraw your original contributions to a Roth IRA at any time, for any reason, tax-free and penalty-free. You only face potential taxes and penalties if you withdraw the *earnings* before age 59½.
  3. Myth 3: A Roth IRA is an investment itself. An IRA is a type of account, not an investment. You must choose what to invest in *inside* the account, such as stocks, bonds, or mutual funds.

Frequently Asked Questions

What is a Roth IRA?

A Roth IRA is a retirement account where you contribute after-tax money. This means your money grows tax-free, and qualified withdrawals in retirement are also completely tax-free. It's a powerful tool for savers who expect to be in a higher tax bracket in the future.

How does a Roth IRA compare to a Traditional IRA?

The main difference is when you pay taxes. With a Roth IRA, you pay taxes now (on contributions) and get tax-free withdrawals later. With a Traditional IRA, you may get a tax deduction now on contributions, but you pay income tax on withdrawals in retirement.

What are the benefits of a Roth IRA?

The primary benefit of a Roth IRA is tax-free growth and tax-free withdrawals in retirement, which provides certainty about your future tax burden. You can also withdraw your original contributions (not earnings) at any time, for any reason, without tax or penalty.

Are there income limits for a Roth IRA?

Yes, there are income limits (Modified Adjusted Gross Income or MAGI) for contributing directly to a Roth IRA. These limits are set by the IRS and change annually. High-income earners may need to use a strategy called a 'backdoor Roth IRA' to contribute.

Tips for Maximizing Your Roth IRA

  • Contribute Early and Often: Maximize the power of compounding by contributing as much as you can, as early as you can.
  • Automate Your Investments: Set up automatic monthly contributions from your checking account to your IRA.
  • Use the "Catch-Up" Contribution: If you are age 50 or older, take advantage of the additional catch-up contribution allowed by the IRS.
  • Consider a "Spousal IRA": If you have a non-working spouse, you may be able to contribute to a Roth IRA on their behalf.

Advertisement Placeholder