IRA Calculator
Model traditional IRA growth with annual contributions, tax-deferred compounding, and employer match assumptions for retirement planning.
Formula
FV = PV(1+r)^n + PMT×[(1+r)^n-1]/r
Future value of existing balance plus future value of annual contribution series, both compounding at the expected return rate.
Worked Examples
Example 1: 40 Years of Maximum Contributions
Problem:Start at age 25 with $0, contribute $7,000/year until 65, assume 7% average annual return. What's the result?
Solution:Annual contribution: $7,000\nYears: 40\nReturn: 7%\n\nFuture value of annuity formula:\nFV = PMT × [(1+r)^n - 1] / r\nFV = $7,000 × [(1.07)^40 - 1] / 0.07\nFV = $7,000 × [14.97 - 1] / 0.07\nFV = $7,000 × 199.64\nFV = $1,397,480\n\nTotal contributed: $7,000 × 40 = $280,000\nGrowth: $1,397,480 - $280,000 = $1,117,480\n\nGrowth is 80% of final balance - power of compound returns!
Result:$1.4M at retirement | 80% from growth
Example 2: Late Start Comparison
Problem:Compare starting IRA at 25 vs 35, both contributing $7,000/year until 65, 7% return.
Solution:Starting at 25 (40 years):\nFV = $1,397,480\nContributed: $280,000\n\nStarting at 35 (30 years):\nFV = $7,000 × [(1.07)^30 - 1] / 0.07\nFV = $7,000 × 94.46\nFV = $661,220\nContributed: $210,000\n\nDifference:\n10 fewer years of contributions: $70,000 less\nFinal balance difference: $736,260 less\n\nEach year of delay costs ~$73,600 in future wealth.\nEarly starting is worth more than contributing more later.
Result:10-year delay costs $736K in final balance
Example 3: Traditional vs Roth Decision
Problem:Income $80,000 (24% bracket now), expect $50,000 (12% bracket) in retirement. $7,000 to invest. Which IRA type?
Solution:Traditional IRA:\nContribute $7,000 (deductible)\nTax savings now: $7,000 × 24% = $1,680\nAfter 30 years at 7%: $53,267\nTax on withdrawal: $53,267 × 12% = $6,392\nNet: $53,267 - $6,392 = $46,875\n\nRoth IRA:\nContribute $7,000 (after-tax, so really $9,211 pre-tax equivalent)\nAfter 30 years at 7%: $53,267\nTax on withdrawal: $0\nNet: $53,267\n\nBut compare equal pre-tax amounts:\nTraditional wins when retirement bracket is lower.\nWith $1,680 tax savings invested (taxable): adds ~$5,000\n\nTraditional advantage: ~$5,000+ in this scenario
Result:Traditional wins when retirement bracket is lower
Frequently Asked Questions
What is a Traditional IRA?
An Individual Retirement Account offering tax-deferred growth. Contributions may be tax-deductible (reducing current taxes). You pay taxes when you withdraw in retirement. Best if you expect to be in a lower tax bracket in retirement than now.
What are IRA contribution limits?
2024 limits: $7,000/year ($8,000 if age 50+). Must have earned income at least equal to contribution. Both Traditional and Roth share this limit combined. No income limits for Traditional IRA contributions (but deductibility phases out if covered by workplace plan).
What's the difference between Traditional and Roth IRA?
Traditional: contributions may be deductible now, pay taxes on withdrawals. Roth: contributions not deductible (after-tax), withdrawals are tax-free. Traditional is better if in higher bracket now than retirement. Roth is better if in lower bracket now, or if you want tax-free withdrawals and to avoid RMDs.
Can I deduct my Traditional IRA contributions?
Depends on income and workplace retirement plan. If no workplace plan: fully deductible at any income. If covered by workplace plan: 2024 single filers - full deduction if MAGI <$77K, partial $77-87K, none above. Married filing jointly: $123-143K. Spouse's coverage has different limits.