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While long term savings in
a Roth IRA may produce better after tax returns, a Traditional
IRA may be an excellent alternative if you qualify for the tax
deduction.
Definitions
Current age
Your current
age.
Annual contribution
The amount
you will contribute to an IRA each year. This calculator assumes
that you make your contribution at the beginning of each year.
From 2008 through 2010, the maximum annual IRA contribution is
$5,000 per individual. It is important to note that this is the
maximum total contributed to all of your IRA accounts. The
contribution limit increases with inflation in $500 increments.
An annual change to the contribution limit only occurs if the
cumulative effect of inflation since the last adjustment is $500
or more.
If you are 50 or older you
can make an additional "catch-up" contribution of $1,000. The
"catch-up" contribution amount of $1,000 remains unchanged for
2010. In order to qualify for the "catch-up" contribution, you
must turn 50 by the end of the year in which you are making the
contribution.
You can no longer make
contributions to a traditional IRA in the year you reach 70 1/2.
It is important to note that
Roth IRA contributions are limited for higher incomes. If your
income falls in a "phase-out" range you are allowed only a
prorated Roth IRA contribution. If your income exceeds the
phase-out range, you do not qualify for any Roth IRA
contribution. The table below summarizes the income "phase-out"
ranges for Roth IRAs.
Starting in 2010 high income
individuals will have the option to make non-deductible
Traditional IRA contributions and then immediately convert them
to a Roth IRA. This can effectively eliminate the income
phase-out for Roth IRA contributions. This loop-hole for Roth
IRA contributions may or may not be available in later years
depending on future changes to the IRA law. This calculator
assumes that you will not be taking advantage of this option.
|
Tax filing status |
2010 Income Phase-Out Range |
|
Married filing jointly or Head of household |
$167,000 to $177,000 |
|
Single |
$105,000 to $120,000 |
|
Married filing separately** |
$0 to
$10,000 |
*For the purposes of this
calculator, we assume are not Married filing separately and
contributing to a Roth IRA.
-
Expected rate of return
-
The
annual rate of return for your IRA. This calculator assumes
that your return is compounded annually and your
contributions are made at the beginning of each year. The
actual rate of return is largely dependent on the type of
investments you select. For example, from December 1999 to
December 2009, the average annual compounded rate of return
for the S&P 500 was -0.6%, including reinvestment of
dividends. From January 1970 to December 2009, the average
annual compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 10.1% (source:
www.standardandpoors.com). Since 1970, the highest 12-month
return was 61% (June 1982 through June 1983). The lowest
12-month return was -43% (March 2008 to March 2009). Savings
accounts at a bank may pay as little as 1% or less but carry
significantly lower risk of loss of principal balances.
It is important to
remember that these scenarios are hypothetical and that
future rates of return can't be predicted with certainty and
that investments that pay higher rates of return are
generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time,
especially for long-term investments. This includes the
potential loss of principal on your investment. It is not
possible to invest directly in an index and the compounded
rate of return noted above does not reflect sales charges
and other fees that funds and/or investment companies may
charge.
-
Age of retirement
-
Age you
wish to retire. This calculator assumes that the year you
retire, you do not make any contributions to your IRA. So if
you retire at age 65, your last contribution happened when
you were actually 64.
-
Current tax rate
-
The
current marginal income tax rate you expect to pay on your
taxable investments.
-
Retirement tax rate
-
The
marginal tax rate you expect to pay on your investments at
retirement.
-
Adjusted gross income
-
Your
adjusted gross income from your taxes. This is used to
calculate whether you are able to deduct your annual
contributions from your income tax statement.
-
Are you married?
-
Check the
box if you are married. This is used to determine whether
you can deduct your annual contributions from your taxes.
-
Employer plan?
-
Check the
box if you have an employer sponsored retirement plan, such
as a 401(k) or pension. This is used to determine if you can
deduct your annual contributions from your taxes.
-
Total non-deductible contributions
-
The total
of your Traditional IRA contributions that were deposited
without a tax deduction. Traditional IRA contributions are
normally tax-deductible. However, if you have an employer
sponsored retirement plan, such as a 401(k), your tax
deduction may be limited.
In 2010, for single tax
filers with an employer sponsored retirement plan, an IRA
contribution is fully tax-deductible if your income is below
$56,000. It is then prorated between $56,000 and $66,000. If
your income is over $66,000 and you have an employer
sponsored retirement plan, such as a 401(k), you receive no
tax deduction. For married couples, the same rules apply
except the deduction is phased out between $89,000 and
$109,000.
This calculator
automatically determines if your tax deduction is limited by
your income. However, there are two unusual situations not
automatically accounted for where additional tax phase-outs
are applied. First, if your spouse has an employer sponsored
retirement plan but you do not, your tax deduction is phased
out from $167,000 to $177,000. Second, if you are married
filing separately and have an employer sponsored retirement
plan, the income phase-out is from $0 to $10,000.
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Total contributions
-
The total
amount contributed to your IRA.
-
IRA total after taxes
-
For the
Roth IRA, this is the total value of the account. For the
Traditional IRA, this is the sum of two parts: 1) The value
of the account after you pay income taxes on all earnings
and tax-deductible contributions and 2) what you would have
earned if you had invested (in an ordinary taxable account)
any income tax savings.
Please note, for
distributions to include earnings that are tax free the Roth
IRA must be opened for 5 tax years. Eligible tax free
distributions include those taken for death or disability,
after age 59 1/2, or for a first time home purchase.
Related:
Other
Financial Calculators
Business Valuation
Estate
Planning
Traditional
IRA
Retirement
Income
Social Security
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