IRA Calculator
Table of Contents
What is an IRA?
An Individual Retirement Account (IRA) is a tax-advantaged savings account designed to help individuals save for retirement. IRAs offer significant tax benefits through either tax-deductible contributions with tax-deferred growth (Traditional), or after-tax contributions with tax-free growth (Roth). The primary advantage is that investment earnings grow tax-sheltered—either tax-deferred or tax-free—allowing your money to compound more efficiently than in regular taxable accounts.
Core Benefits of IRAs
The Power of Tax-Sheltered Growth
Over 30-40 year time horizons, the tax advantages of IRAs create dramatically different wealth outcomes compared to taxable accounts. When you eliminate annual capital gains taxes and allow your returns to compound uninhibited, your retirement account balance can be 50-100% higher than equivalent taxable investments. This calculator quantifies that advantage for your specific situation.
Types of IRAs Compared
Traditional IRA
Best for: Mid to high-income earners seeking immediate tax deductions. Traditional IRAs allow you to deduct contributions from your current taxable income, reducing your tax bill immediately. You pay taxes on all withdrawals in retirement at ordinary income tax rates. Contribution limits are $7,000 for 2025 ($8,000 if age 50+), subject to Modified Adjusted Gross Income (MAGI) limits if you're covered by an employer retirement plan.
Roth IRA
Best for: Younger savers with 30+ years until retirement. Roth IRAs use after-tax contributions but provide tax-free growth and tax-free withdrawals. There are no Required Minimum Distributions during your lifetime, making Roth accounts superior for long-term wealth accumulation and legacy planning. Income limits apply: $146,000-$161,000 MAGI for single filers in 2025.
SEP IRA (Simplified Employee Pension)
Best for: Self-employed individuals and small business owners. SEP IRAs allow contributions up to 25% of net self-employment income, capped at $69,000 for 2024. They require minimal administration and offer much higher contribution limits than Traditional/Roth IRAs. Contributions are tax-deductible, but withdrawals are taxed as ordinary income.
SIMPLE IRA
Best for: Small businesses with 100 or fewer employees. SIMPLE IRAs require employers to make matching contributions (typically 3%) or non-elective contributions (2%). Employee contribution limits are $16,000 for 2024 ($17,000 with catch-up). This plan is easier to administer than 401(k)s while still providing meaningful retirement savings opportunities.
Comparison Summary
| Feature | Traditional IRA | Roth IRA | SEP IRA | SIMPLE IRA |
|---|---|---|---|---|
| Contribution Limit (2025) | $7,000 / $8,000 age 50+ | $7,000 / $8,000 age 50+ | Up to $69,000 | $16,000 / $17,000 age 50+ |
| Tax on Contributions | Deductible (current) | After-tax | Deductible (current) | Deductible (current) |
| Tax on Withdrawals | Ordinary income tax | Tax-free (qualified) | Ordinary income tax | Ordinary income tax |
| RMDs Required | Yes, age 73+ | No, during lifetime | Yes, age 73+ | Yes, age 73+ |
| Best For | Employees seeking tax deduction | Long-term investors, younger savers | Self-employed, business owners | Small business employers |
Formulas and Calculations
Traditional IRA Balance Growth (Before Tax)
Calculate how Traditional IRA contributions and earnings grow before tax withdrawal:
Where:
- FV = Future Value (before-tax balance)
- PV = Present Value (starting balance)
- r = Annual return rate (decimal)
- n = Number of years
- PMT = Annual contribution
Traditional IRA Balance After Taxes
Calculate the after-tax value accounting for withdrawal taxes in retirement:
Where:
- t_r = Tax rate in retirement (as decimal)
Roth IRA After-Tax Balance
Roth IRAs grow entirely tax-free, so no tax adjustment is needed:
This demonstrates Roth IRAs' primary advantage: complete tax-free growth and withdrawal.
Taxable Account After-Tax Balance
Compare IRA growth to an equivalent taxable account with annual tax drag:
This shows how annual capital gains taxes reduce compound growth compared to tax-sheltered IRAs.
Tax Savings Calculation
Calculate the total tax advantage of using Traditional IRAs versus taxable accounts:
These formulas quantify how much additional wealth IRAs create through tax efficiency.
SEP IRA Contribution Calculation
For self-employed individuals, calculate maximum SEP IRA contribution:
SEP contribution percentage is typically 20% for self-employed individuals, with a 2024 limit of $69,000.
Uses and Benefits of IRAs
Retirement Income Planning
IRAs are the cornerstone of retirement planning for millions of Americans. By maximizing contributions during working years and allowing tax-sheltered growth, you build substantial retirement capital. This calculator shows how different IRA types accumulate wealth and guides your choice between Traditional and Roth based on your tax situation.
Tax Optimization Strategies
Self-Employment and Business Owners
Self-employed individuals and small business owners have superior IRA options. SEP IRAs allow contributions up to 25% of net self-employment income (up to $69,000), and Solo 401(k)s permit even higher contributions through both employee deferrals and employer contributions. These vehicles enable business owners to save substantially more for retirement than Traditional/Roth IRAs alone.
Estate Planning and Wealth Transfer
IRAs offer significant estate planning advantages. Roth IRAs, in particular, make excellent inherited assets because beneficiaries receive tax-free distributions. This makes maximizing Roth contributions especially valuable for high-net-worth individuals seeking to leave the largest possible tax-free inheritance.
Early Retirement Planning
For those planning early retirement, Traditional IRAs provide immediate tax deductions that can be reinvested for additional growth. Roth IRAs offer withdrawal flexibility—you can withdraw contributions anytime without penalty, providing emergency liquidity while maintaining long-term growth potential.
Employer-Sponsored SIMPLE and SEP IRAs
Small business owners use SIMPLE IRAs to provide affordable retirement benefits to employees while contributing for themselves. This improves employee retention and satisfaction while building significant personal retirement savings. SEP IRAs offer even simpler administration with no annual employer reporting requirements.
How to Use This Calculator
Enter Current Balance
Input your existing IRA balance(s). If starting from scratch, enter $0. Include all IRA balances being compared (Traditional, SEP, SIMPLE, etc.).
Set Annual Contribution
Enter your annual before-tax contribution. For Traditional/Roth: up to $7,000 ($8,000 if 50+). For SEP: up to 25% of net self-employment income. For SIMPLE: $16,000 ($17,000 if 50+).
Enter Expected Return Rate
Input your expected annual investment return as a percentage. Use 6-8% for balanced portfolios, higher for aggressive, lower for conservative strategies.
Set Your Current Age
Enter your age in years. Combined with retirement age, this determines your compounding period and investment timeline.
Enter Retirement Age
Specify the age at which you plan to retire. The calculator projects balances until this age.
Set Current Marginal Tax Rate
Enter your current highest tax bracket percentage. For 2025: 22% for ~$44,725-$95,375 (single), 24% for $95,376-$182,100, etc.
Enter Expected Retirement Tax Rate
Enter the tax rate you expect in retirement. Many assume lower rates post-retirement, but use conservative estimates for accurate planning.
Calculate and Compare Results
Click Calculate to see before-tax and after-tax balances for Traditional, Roth, and taxable accounts. Review the annual schedule and tax advantage comparison.
IRA Calculator
Your IRA Growth Comparison
A Traditional, SIMPLE, or SEP IRA account can accumulate $0 more after-tax balance than a Roth IRA account at age 65.
A Roth IRA account can accumulate $0 more than a regular taxable savings account.
Annual Schedule Comparison
| Age | Traditional (Before Tax) | Traditional (After Tax) | Roth IRA (After Tax) | Taxable (After Tax) |
|---|
How This Calculator Works
Step 1: Input Validation and Processing
The calculator validates all inputs for logical consistency: current age must be less than retirement age, contribution amounts must be positive, and tax rates must fall between 0-37%. Invalid inputs trigger helpful error messages guiding correction.
Step 2: Traditional IRA Before-Tax Growth
Using the future value of annuity formula, the calculator compounds your starting balance and annual contributions at your expected return rate. Each year: New Balance = (Previous Balance + Contribution) × (1 + Expected Return) This represents the full pretax account value without accounting for future withdrawal taxes.
Step 3: Traditional IRA After-Tax Calculation
To calculate the after-tax value you'll have available to spend in retirement, the calculator applies your expected retirement tax rate to the before-tax balance: After-Tax = Before-Tax × (1 - Retirement Tax Rate) This shows your true spendable wealth from the Traditional IRA.
Step 4: Roth IRA Tax-Free Growth
Roth IRAs grow at the same rate as Traditional IRAs (using the future value formula), but since withdrawals are tax-free, the after-tax balance equals the before-tax balance. This demonstrates Roth's primary advantage: no tax reduction on the final value.
Step 5: Taxable Account Simulation
The calculator models an identical investment in a taxable account, adjusting for annual tax drag. The after-tax return each year is: After-Tax Return = Expected Return × (1 - Current Tax Rate) This reduced return compounds annually, showing how capital gains taxes reduce wealth accumulation versus tax-sheltered accounts.
Step 6: Year-by-Year Schedule Generation
The calculator generates detailed annual schedules from your current age to retirement age, showing all four account types side-by-side. This helps visualize how Traditional, Roth, and taxable accounts perform year-by-year under your specific assumptions.
Step 7: Tax Advantage Quantification
The calculator computes two key comparisons:
- Traditional vs. Roth: Shows which type works better in your situation based on tax rate changes
- IRA vs. Taxable: Demonstrates total wealth advantage from tax-sheltered accounts
Key Calculation Assumptions
- Contributions occur at the beginning of each year
- Investment returns compound annually at the specified rate
- Tax rates remain constant throughout the period
- All withdrawals occur as ordinary income (no special treatment)
- No early withdrawals or special distributions are made
- RMD calculations are not included in this model
Frequently Asked Questions
Traditional IRAs allow tax-deductible contributions in the current year, reducing your immediate tax bill. You pay ordinary income tax on all withdrawals in retirement. Roth IRAs use after-tax contributions but provide tax-free withdrawals. Traditional IRAs reduce current taxes while Roth IRAs eliminate future taxes on earnings. This calculator shows which type works better based on your current and expected retirement tax rates.
A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small business owners. It allows contributions up to 25% of net self-employment income, capped at $69,000 for 2024. SEP IRAs require minimal administration compared to other retirement plans, making them ideal for freelancers, consultants, and solo entrepreneurs. Employers can also make contributions for employees.
A SIMPLE IRA is designed for small businesses with 100 or fewer employees. Employers must make either matching contributions (typically 3%) or non-elective contributions (2%). Employees can contribute up to $16,000 for 2024 (with $3,500 catch-up for age 50+). SIMPLE IRAs are easier to administer than 401(k)s while still providing meaningful retirement savings vehicles for both employers and employees.
For 2025, the contribution limit for Traditional and Roth IRAs is $7,000 for those under 50 years old, and $8,000 for those 50 and older (with $1,000 catch-up contributions). SEP IRA limits go up to $69,000 for 2024. SIMPLE IRA limits are $16,000 for 2024 ($17,000 with catch-up). These limits typically increase annually with inflation in $500 increments.
Withdrawals from Traditional IRAs before age 59½ are generally subject to a 10% penalty plus ordinary income tax. However, several exceptions exist including qualified medical expenses, first-time home purchase ($10,000 lifetime), disability, and education expenses. Roth IRA contributions can be withdrawn anytime without penalties or taxes. Roth earnings can be withdrawn penalty-free for qualified distributions at age 59½ after a 5-year holding period.
Self-employed individuals can contribute to both Traditional/Roth IRAs (up to $7,000 in 2025) and a SEP IRA or Solo 401(k). With a SEP IRA, you can contribute up to 25% of net self-employment income (minus half of self-employment tax), up to $69,000 for 2024. Solo 401(k)s allow even higher contributions through both employee deferrals (up to $23,500 for 2024) and employer contributions (up to 25% of net SE income).
Before-tax balance shows the full account value of Traditional/SIMPLE/SEP IRAs without accounting for future withdrawal taxes. After-tax balance shows the value remaining after paying taxes at your specified retirement tax rate. This helps you compare the true purchasing power of different IRA types. Roth IRAs have no after-tax adjustment since withdrawals are completely tax-free.
Traditional IRAs, SEP IRAs, and SIMPLE IRAs require RMDs starting at age 73 (as of 2023, increased from age 72). You must withdraw a calculated percentage of your balance annually. Roth IRAs have no RMDs during the account owner's lifetime, making them superior for those wanting maximum flexibility in retirement and for legacy planning. This makes Roth accounts particularly valuable for high-net-worth individuals.
The calculator compares Traditional and Roth IRA after-tax balances against an identical taxable investment account. For Traditional IRAs, it shows the wealth advantage from deductible contributions in your current high tax bracket, projected forward with lower retirement tax rates. For Roth IRAs, it demonstrates tax-free growth advantage. The difference between IRA and taxable account balances reveals your total tax-sheltering benefit from using retirement accounts.
Choose Traditional if you're in a high tax bracket now and expect lower taxes in retirement. The immediate deduction helps now, and paying lower taxes later optimizes your lifetime tax burden. Choose Roth if you're in a lower tax bracket now, expect higher taxes later, or want tax-free growth for 30+ years. Younger savers almost always benefit more from Roth accounts due to longer compounding periods. This calculator helps you model both scenarios with your specific numbers to make an informed decision.