Roth IRA Calculator

Current Balance 
Annual Contribution 
Annual Investment Return%
Current Age 
Retirement Age 
Marginal Tax Rate%
Inflation Rate%

Result

 Roth IRARegular Taxable Savings
Balance at Age 39$74,687$65,063
Equivalent Purchasing Power Today$57,241$49,865
Total Principal$49,500$49,500
Total Interest$30,687$23,228
Total Tax$0$7,665

According to provided information, the Roth IRA account can accumulate $9,624 more than a regular taxable savings account by age 39.

Balance Accumulation Graph

Annual Schedule

 PrincipalRoth IRARegular Taxable Savings
AgeStartEndStartEndStartEnd
30$0$5,500$0$5,500$0$5,500
31$5,500$11,000$5,500$11,550$5,500$11,369
32$11,000$16,500$11,550$18,205$11,369$17,630
33$16,500$22,000$18,205$25,526$17,630$24,311
34$22,000$27,500$25,526$33,578$24,311$31,440
35$27,500$33,000$33,578$42,436$31,440$39,047
36$33,000$38,500$42,436$52,179$39,047$47,163
37$38,500$44,000$52,179$62,897$47,163$55,823
38$44,000$49,500$62,897$74,687$55,823$65,063

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A Roth IRA is one type of Individual Retirement Arrangement (IRA) that provides tax-free growth and tax-free income in retirement. The major difference between Roth IRAs from traditional IRAs are that contributions to the former are not tax-deductible and contributions (not earnings) may be withdrawn tax-free at any time without penalty.

Contributions to Roth IRAs

Distributions from Roth IRAs

Pros

Liquidity—Common retirement plans such as 401(k)s and traditional IRAs do not allow tax-free or penalty-free withdrawals until retirement, usually decades in the future. However, because contributions to Roth IRAs are made using after-tax dollars, the contributions can be withdrawn at any time tax-free and penalty-free. Note that this is for contributions only, not any of the earnings. Due to this benefit, many account holders designate their Roth IRA accounts as emergency funds. Because withdrawal on contributions are tax-free and penalty-free, when dire situations call for it, they can take the money out. However, if the annual contribution limit is reached and an account holder decides to withdraw, they cannot re-contribute that same amount within the same tax year as a Roth IRA contribution towards retirement. Because the annual contribution limit was initially reached in that same tax year, it will be treated as a regular investment on top of and in addition to it to the fund.

Many Investment Options—Roth IRAs are available from most of the biggest, reputable financial institutions. Most, if not all investment options are only limited by what is offered through each financial institution.

No Age Limits—Traditional IRAs only allow contributions for anyone below 70 ½. Roth IRAs do not have such limits. Also, there is no required minimum distribution, so account holders can choose to start withdrawing whenever they want in retirement. These two taken together can be beneficial for high life expectancy individuals, estate-planning, or those who earn income or want to save above certain age limits. On the other end of the spectrum, there is no age limit for when to start a Roth IRA, as long as the account holder has earned income. A 5-year old who made $3,000 a tax year selling lemonade in front of her house can contribute up to $3,000 of that year's income into her Roth IRA account.

Cons

Low Contribution Limit—The annual IRA contribution limit for tax year 2018 is $5,500 for those under the age of 50, or $6,500 for those 50 and older. In comparison, the 401(k) contribution limit is $18,500 a year.

Income Limit—The income limit disallows high income earners to participate in Roth IRAs. As mentioned before, the limits are adjusted gross incomes of $135,000 for individuals, or $199,000 for married couples filing jointly. Anyone above these figures cannot contribute to Roth IRA accounts, but there is a way for these individuals to contribute to traditional IRAs initially then convert them into Roth IRAs, though things can get quite complex.

Does Not Reduce Taxable Income—Because only after-tax dollars go into Roth IRAs, there are no initial tax breaks to take advantage of. However, low- and middle-income taxpayers can use the Saver's Credit for tax savings between 10% and 50% of the first $2,000 contributed to a Roth IRA. This tax credit is non-refundable.

Minimum Holding Period—This may only apply to a minor crowd who start Roth IRAs near retirement, but tax-free withdrawals on earnings in retirement cannot be made unless funds in the account have been held for at least five years. When this period begins is largely dependent on whether the distributions are qualified or non-qualified. For qualified distributions, this period begins the first day of the first year for which Roth IRAs were funded. For non-qualified distributions, there are separate five-year periods for each Roth IRA conversion. Each begins the first day of the year when the conversion is made.