Use this IRA calculator for evaluating and comparing Roth IRAs, SEP IRAs, Traditional IRAs, Simple IRAs, and your regular taxable savings. To do the comparisons, the regular taxable savings and the Roth IRA values are shown as after-tax values. The IRA calculator here is intended mainly for US residents.
Symbolically, a circle might be a representation of quite a few different things for quite a few different groups including concepts like timelessness, eternity, and totality. However, the definition of a circle says it's just a closed shape. It, basically, combines all the points in the plane that are at equal distances from any certain point which is known as the center of the circle.
In US, IRA or individual retirement account serves as a sort of your retirement plan that comes with some retirement benefits. There are different types of IRAs available today and most common of them are the traditional and the Roth IRAs. Contributions that are made to Roth IRAs aren't tax deductible, and still you don't have to pay any taxes on the withdrawals that you make after your retirement. On the contrary, there is tax deducted on contributions that are made to the Traditional IRAs and still you have to pay tax on your withdrawals that are made after your retirement.
Most of the people can expect the marginal rates after their retirement to be lower. For them traditional IRAs tend to be more beneficial financially and the simple reason for it is that taxation happens after retirement rather than the prime years at work. More wealth is accumulated by both the options as compared to any investments or regular taxable savings because there are tax shields present. SEP IRAs, on the other hand, are popular among the self-employed whereas small businesses often take advantage of Simple IRAs.
So, let's take a look at some common IRA types that are within the scope of this IRA calculator.
Traditional IRAs are the most common being used today. They're qualified plans for retirement with tax shields for any of your funds that you put aside for your retirement. Taxation only happens when you're withdrawing in retirement or before that. Making early withdrawals, however, will get penalized except in a few qualified cases. Tax-deductible contributions are made to these IRAs in certain cases depending on gross income and the tax-filing status. Once you're 59 ½ years of age, you can make penalty-free withdrawals and withdrawals are not needed at all after 70 1/2 because it becomes mandatory for you to take required minimum distribution then.
The contributions to Roth IRAs come from after-tax assets or income. There is no tax on the investment income and also on withdrawals. Once you're 59 1/2 years of age, you can make penalty-free withdrawals. The withdrawals, however, aren't mandatory during the lifetime of the owner. Essentially, these IRAs can become tax-free all through the lifetime of the owner.
SEP IRA refers to Simplified Employee Pension IRA and it is initiated by the employer. With these IRAs, the employers can contribute to their employees' IRA accounts. Most of the times, small businesses use these IRAs and the self-employed also use them sometimes. For this reason, they're designed in a way that they can be setup quite easily be anyone. They work like traditional IRAs when it comes to balance accumulation, taxes, and distribution. The contribution limits here vary from the popular IRAs discussed above. No catch-up contributions are in place for the account holders who reach the age of 50 or more.
Here, Simple refers to Savings Incentive Match Plan for Employee. These are designed for the small businesses that have 100 employees at most. The contributions may be deducted by the employers as their business expenses. The retirement plan requires the employers to select between a couple of matching options. First is the match of contributions that is around 3% of employee's contribution. Second is 2% fixed rate for each employee's compensation whether they're participating or not. Annual limits on contributions remain at $12500 or 100% of the compensation amount for both the options. If there are other plans that the employee is also part of, sum of all the contributions must not go beyond $18000.
The IRA calculator here requires you to provide your current balance, annual contributions that you intend to make, rate of annual return on your investment, your current and expected retirement age, current marginal tax rate, marginal tax rate at retirement, and the inflation rate. As you enter all these values into the calculator, just hit the calculate button and the IRA calculator will show you the calculation results instantly.
The results shown by the calculator feature values for Traditional, SEP or SIMPLE IRA and then there are values for Roth IRA and Regular Taxable Savings. All the values are shown side by side for easy comparison. The values for each of these IRAs represent your balance when you're 65, after tax balance at age 65 and today's buying power equivalent. Now that's quite a lot of information and it helps you easily decide which option would be better for you. Besides, the IRA calculator also gives you a tabular representation for all the above mentioned IRAs.