Roth IRA vs. Traditional IRA Calculator

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How To Use The Roth IRA vs. Traditional IRA Calculator

Simply fill out the fields in the Roth IRA vs. Traditional IRA calculator featured above, using a value for each of the following items:

• Annual Contribution
• Expected Rate of Return
• Inflation Rate
• Current Age
• Current Tax Rate
• Retirement Age, and
• Expected Tax Rate in Retirement

Not sure what these terms mean? Not sure what numbers to put in?

Use the section below as a guide for your Roth IRA vs. Traditional IRA calculations.

Then, as you fill in each field with numbers customized to your situation, the calculator will automatically update to reveal two projected inflation-adjusted values for your retirement savings - one if you invested your contributions in a Roth IRA and the other if you invested them in a Traditional IRA.

Roth IRA vs. Traditional IRA Calculator Terms

Below is an explanation of each calculator term:

Annual Contribution
This is the amount you plan to contribute to either your Roth IRA or Traditional IRA on an annual basis.

For example, let's say you plan to contribute $400 per month to your Roth IRA. If so, then put $4,800 in the "Annual Contribution" field.

The default for this field is set to $5,000 because that's the maximum contribution you can make to an IRA if you're under age 50.

However, the maximum contribution is $6,000 for people age 50 and older. So if you're 50 or older and plan to make the maximum contribution, put $6,000 in the "Annual Contribution" field.

If you're married, and both you and your spouse intend to make the maximum contribution, then input the appropriate amount in this field.

For example, if both you and your spouse are over age 50 and eligible to contribute the maximum amount, then put $12,000 in the "Annual Contribution" field.

***SPECIAL NOTE***

Your maximum annual contribution limit applies to all IRAs in your name, so if you plan to contribute the maximum, you can do so by putting all your contributions in one fund or spreading them across multiple IRAs.

But you can NOT contribute the maximum amount to multiple accounts.

For example, let's say you're maximum annual contribution limit is $5,000. You can contribute up to $5,000 to your Roth IRA or your Traditional IRA. Or you can contribute $2,500 to your Roth IRA and $2,500 to your Traditional IRA (or any combination equal to $5,000).

However, you can't contribute $5,000 to your Roth IRA and $5,000 to your Traditional IRA, because your maximum annual contribution limit applies across all IRA accounts.

Expected Rate of Return
This is the annual compound rate of return you anticipate receiving on your retirement savings. This will vary from person to person based investing strategy, fees, types of investments, and other factors.

However, since most people invest their retirement savings in stocks, the default is set to 10.85% - the annual compound rate of return on the S&P 500 from 1959 to 2003.

If you expect a higher or lower rate of return, adjust accordingly.

Inflation Rate
This is the annual rate of inflation you project for the timeframe in which your retirement savings is invested.

It's important that you don't underestimate the rate of inflation since it will eat away at the purchasing power of your savings over time.

The default rate is set at 4.1% - the approximate annual rate of inflation over the past seven decades.

However, if you're more conservative, you might want to use a higher rate of inflation.

Current Age
This is fairly self-explanatory. Just check your birth certificate if you're not sure!

Seriously, though, you might want to consider an older age for this field if you're not yet investing in an IRA but plan to do so in the future.

Current Tax Rate
This is the income tax rate which currently applies to your income.

For instance, if you earn $60,000 per year, and you're currently in the 25% federal income tax bracket, put 25% in the "Current Tax Rate" field.

Retirement Age
This is the age at which you'd like to retire, and while you'd probably like to make this the same as your current age, that may not be realistic... (although I hope I'm wrong!)

Make sure you put a realistic age in the "Retirement Age" field in order to get the most accurate calculation of your inflation-adjusted retirement savings.

Expected Tax Rate in Retirement
This is the tax rate you anticipate in your retirement years.

While tax rates are subject to change over time, a good ballpark estimate will serve you well.

For example, if you're currently in the 25% tax bracket but you anticipate earning less in your retirement years, then you might put 15% in the "Expected Tax Rate in Retirement" field.

However, if you're currently in the 25% tax bracket but you expect to earn more in retirement or you think tax rates will climb over time, then you might put 30% or 35% in the "Expected Tax Rate in Retirement" field.

Roth IRA Retirement Balance
This is the projected inflation-adjusted value of your Roth IRA when you retire.

The Roth IRA vs. Traditional IRA calculator automatically updates this value when you fill in the aforementioned fields.

This value represents your tax-free savings in terms of today's dollars - meaning a million dollar nest egg will retain the equivalent purchasing power of a million dollars today.

Traditional IRA Retirement Balance
This is the projected inflation-adjusted value of your Traditional IRA when you retire.

The Roth IRA vs. Traditional IRA calculator automatically updates this value when you fill in the aforementioned fields.

This value represents your tax-free savings in terms of today's dollars - meaning a million dollar nest egg will retain the equivalent purchasing power of a million dollars today.

This figure indicates the after-tax value (at your expected tax rate in retirement) of your Traditional IRA. This is an important distinction since you're comparing this balance to an otherwise tax-free Roth IRA balance.

Calculating a Roth IRA vs. Traditional IRA

When comparing a Roth IRA vs. Traditional IRA, many factors come into play, and the ultimate size of your retirement savings is just one of them.

This Roth IRA vs. Traditional IRA calculator provides you with a ballpark estimate of your inflation-adjusted retirement savings under two different scenarios - one where all your contributions are invested in a Roth IRA and one where they're all invested in a Traditional IRA.

But it's important to remember this is only an estimate.

After all, estimates are only as good as their underlying assumptions.

So do lot's of research.

When it comes to weighing the benefits of a Roth IRA vs. Traditional IRA, your Current Tax Rate and your Expected Tax Rate In Retirement are two of the most important factors.

Generally speaking, if you expect to be in a higher tax bracket in retirement, you'll save more with a Roth IRA, while if you expect to be in a lower tax bracket in retirement, you'll save more with a Traditional IRA.

But remember that you need to consider other factors as well, such as forced distributions.

With a Traditional IRA, you're forced to start taking distributions at age 70 ½. But with a Roth IRA, you're never forced to make a distribution.

Investigate the pros and cons of each before making your decision.

In the meantime, the Roth IRA vs. Traditional IRA calculator above will hopefully provide you with another valuable means of comparison.

Additional Roth IRA Calculators

Roth IRA Conversion Calculator - Use this calculator to compare the projected after-tax value of your Traditional IRA or 401k to the projected tax-free value of the same funds in your Roth IRA. Comparing the two will help you determine if a Roth IRA conversion is right for you.

Roth IRA vs. 401k Calculator - Use this calculator to determine which account is best for you - a Roth IRA or a 401k. However, keep in mind that if your company matches your 401k contributions, then you should most likely contribute to your 401k first (up to the match).

Roth IRA Savings Calculator - Use this calculator to estimate the inflation-adjusted value of your Roth IRA at retirement age. Experiment with different starting balances, annual contributions, rates of return, inflation rates, and retirement ages to help set the parameters of your retirement plan.

Roth IRA Investment Calculator - Use this calculator to determine the rate of return you need to generate on your Roth IRA savings in order to meet your retirement goal.

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