Roth IRA Calculator

A Roth IRA is a retirement account where you contribute after-tax dollars, and in return, all future growth and qualified withdrawals are completely tax-free. Unlike a Traditional IRA where you get an upfront tax deduction, Roth contributions are made with money you have already paid taxes on. The major advantage is that decades of investment gains, dividends, and compounding are never taxed when you withdraw them in retirement. For someone who invests $6,500 per year for 30 years and accumulates $700,000 or more, the tax-free withdrawal benefit can save tens of thousands of dollars compared to a taxable account.

For 2024, the Roth IRA contribution limit is $7,000 per year, or $8,000 if you are age 50 or older. However, the ability to contribute to a Roth IRA phases out at higher income levels. Single filers with a modified adjusted gross income (MAGI) between $146,000 and $161,000 can make only a partial contribution, and those above $161,000 cannot contribute directly at all. For married couples filing jointly, the phase-out range is $230,000 to $240,000. High earners who exceed these limits can still access Roth benefits through a strategy known as the backdoor Roth IRA conversion.

The core difference between a Roth IRA and a Traditional IRA is when you receive the tax benefit. Traditional IRA contributions are tax-deductible now, reducing your current taxable income, but withdrawals in retirement are taxed as ordinary income. Roth IRA contributions provide no upfront deduction, but qualified withdrawals are entirely tax-free. If you expect to be in a higher tax bracket in retirement than you are now, a Roth IRA generally provides more lifetime tax savings. Roth IRAs also have no Required Minimum Distributions during the owner's lifetime, making them a superior vehicle for estate planning and wealth transfer.

Roth IRA withdrawal rules follow an ordering system: contributions can always be withdrawn tax-free and penalty-free at any time, since you already paid taxes on that money. However, withdrawals of earnings before age 59½ may be subject to a 10% early withdrawal penalty plus income taxes unless an exception applies. To withdraw earnings completely tax-free and penalty-free, you must be at least 59½ and the account must have been open for at least five years, known as the five-year rule. Exceptions to the early withdrawal penalty include first-time home purchases up to $10,000, qualified education expenses, and certain medical costs.