Roth Vs Traditional Ira Calculator

IRA Comparison Formulas:

\[ Roth\ FV = Contrib \times (1 + r)^t \] \[ Traditional\ FV = Contrib \times (1 + r)^t \times (1 - tax) \]

Annual Contribution ($):

Annual Return Rate:

Investment Years:

years

Tax Rate at Withdrawal:

Roth IRA Future Value:

Traditional IRA Future Value:

Difference (Roth - Traditional):

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1. Roth vs Traditional IRA Comparison

The calculator compares the future value of Roth and Traditional IRA accounts based on your contributions, expected returns, investment horizon, and anticipated tax rate at withdrawal.

2. How the Calculator Works

The calculator uses these formulas:

\[ Roth\ FV = Contrib \times (1 + r)^t \] \[ Traditional\ FV = Contrib \times (1 + r)^t \times (1 - tax) \]

Where:

$ Contrib $ — Annual contribution amount
$ r $ — Annual return rate (decimal)
$ t $ — Investment period in years
$ tax $ — Tax rate at withdrawal (decimal)

Explanation: Roth IRA grows tax-free, while Traditional IRA is taxed upon withdrawal. The calculator shows which option may be better based on your specific situation.

3. Key Differences Between IRA Types

Details: Roth IRAs offer tax-free growth and withdrawals, while Traditional IRAs offer tax-deductible contributions but taxable withdrawals. The better choice depends on your current vs. future tax rates.

4. Using the Calculator

Tips: Enter your annual contribution amount, expected annual return rate, number of years you plan to invest, and your anticipated tax rate at retirement. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Which is better, Roth or Traditional IRA?
A: It depends on your current tax rate vs. expected retirement tax rate. Roth is better if you expect higher taxes in retirement.

Q2: Are there income limits for these accounts?
A: Yes, both have income limits for contributions. Roth IRA has direct contribution limits, while Traditional IRA has deduction limits.

Q3: What if my tax rate changes over time?
A: This calculator assumes a constant tax rate. For more complex scenarios, consult a financial advisor.

Q4: Can I have both types of IRAs?
A: Yes, but your total contributions to all IRAs cannot exceed the annual limit ($6,500 or $7,500 if 50+ in 2023).

Q5: Does this account for required minimum distributions?
A: No, this simple calculator doesn't account for RMDs which apply to Traditional IRAs starting at age 72.