Roth IRA Calculator

What Is a Roth IRA?

A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement savings account established by the Taxpayer Relief Act of 1997, named after Senator William Roth. Unlike a Traditional IRA, contributions to a Roth IRA are made with after-tax dollars, meaning you pay taxes on the money before it goes in. The major benefit is that your investments grow tax-free, and all qualified withdrawals in retirement are completely tax-free — including all the investment gains.

Roth IRA vs Traditional IRA: Key Differences

• Tax timing: Roth IRA contributions are after-tax (no deduction now, but tax-free withdrawals). Traditional IRA contributions may be tax-deductible (tax savings now, but withdrawals are taxed).
• Required Minimum Distributions (RMDs): Roth IRAs have no RMDs during the owner's lifetime. Traditional IRAs require distributions starting at age 73.
• Withdrawal flexibility: Roth IRA contributions (not earnings) can be withdrawn at any time without penalties. Traditional IRA withdrawals before age 59½ incur a 10% penalty.
• Income limits: Roth IRAs have income eligibility limits ($146,000-$161,000 for single filers in 2024). Traditional IRAs have no income limits for contributions, but deductibility may be limited.
• Estate planning: Roth IRAs are generally more favorable for heirs, who can inherit the account tax-free.

2024 Roth IRA Contribution Limits

• Under age 50: $7,000 per year
• Age 50 and older: $8,000 per year ($7,000 + $1,000 catch-up)
• Single filer income phase-out: $146,000 - $161,000 MAGI
• Married filing jointly phase-out: $230,000 - $240,000 MAGI

When Is a Roth IRA Better?

• You are young and in a low tax bracket: Pay low taxes now, enjoy decades of tax-free growth.
• You expect higher taxes in retirement: If tax rates rise or your income will be higher.
• You want withdrawal flexibility: Access contributions anytime without penalties.
• You want to avoid RMDs: No forced distributions means more control over your retirement income.
• You are planning for heirs: Tax-free inheritance is a significant estate planning advantage.

The Power of Tax-Free Compounding

The true power of a Roth IRA becomes apparent over long time horizons. Because your investments grow tax-free, the compounding effect is amplified. For example, a 25-year-old contributing $7,000 annually at 7% returns will have approximately $1.5 million at age 65 — all of which can be withdrawn tax-free. In a Traditional IRA with the same parameters, a 22% tax on withdrawals would reduce the usable amount by over $330,000.

Frequently Asked Questions