This Roth IRA calculator compares the tax consequences of keeping your traditional IRA vs. converting to a Roth IRA.
- Calculator assumes you will keep your Roth IRA for at least 5-years and you won’t withdraw any funds until after age 59-1/2.
- Calculator also assumes your return on investment and tax brackets remains constant.
- Finally, this calculator does not account for any state taxes or alternative minimum tax.
All results are hypothetical, so be sure to consult a qualified tax professional before making any decisions regarding your existing IRA.
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.
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).
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