Roth IRA Conversion Calculator
This Roth IRA calculator that will compare the tax consequences of keeping your traditional IRA vs. converting to a Roth IRA.
Individual Retirement Account (IRA)
A lot of people mistakenly think that an IRA is an investment. An IRA is a personal retirement savings to anyone who earns taxable compensation during the year. Your monthly contribution to your IRA will be based on your compensation, which includes wages, salaries, fees, tips, bonuses, commissions, taxable alimony, and separate maintenance payments.
Both husband and wife can have an IRA even if either of the spouses is not working. Unlike 401K’s where employers provide the accounts, IRAs can be opened by a self-employed individual or business owners. There are different types of IRAs and that includes the traditional or the Regular IRA and Roth IRA. Each has eligibility restrictions based on your income or employment status. And all have limits on how much you can contribute each year and penalties if you take out your money before the pre-determined retirement age. To help you check which IRA may be the most advantageous for you, use the Roth IRA calculator above.
Difference Between Roth And Traditional IRA
For both the traditional and Roth IRAs, your money grows tax-free as long as it is in the account. The type of individual retirement account you choose has a significant impact to you and your family’s long-term savings. So it is important to understand the differences between traditional IRAs and Roth IRAs in order to select the best one for you.
For Traditional IRA, you have an option to contribute and not claim the tax deduction even though you are eligible to do so. The benefit of not taking a deduction is that the distribution of the equivalent amount is tax and penalty free – like the distributions of the Roth IRA. The earnings distributed from the Traditional IRA, however, will be treated as taxable income, whereas qualified distributions of earnings from a Roth IRA are tax-free.
For both traditional and Roth IRAs, the owners can begin withdrawing their contributions at the age of 59.5 without any penalty. However, for traditional IRA, distributions will be treated as ordinary income and may be subjected to an early-distribution penalty if the owner withdraws before reaching the age of 59.5.
Do you want to make a quick comparison? You can plug in your own numbers to compare the two types of account by using our Roth IRA calculator.
Making A Decision
The deciding factor for some taxpayers for choosing between Roth and Traditional IRA is their eligibility to deduct their contributions to traditional IRA. Your eligibility to deduct your contributions, does not guarantee that traditional IRA is the best choice. Take into consideration the benefits of Roth IRA – such as the convenience of withdrawing the contributions anytime without worrying the taxes and penalties.
Roth IRA Calculator Terms and Definitions:
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