Roth IRA Calculator

A Roth IRA reverses the timing of the tax break relative to a traditional account. Contributions are made with dollars that have already been taxed, the balance compounds untaxed, and qualified distributions come out entirely tax-free provided the account holder is at least 59 and a half and the account has been open five tax years. That five-year clock runs separately for conversions, which is a detail that catches people who convert late in life. Because the growth is never taxed, the future value is the plain compound-interest result: current balance times (1 + r) to the n, plus the annual contribution multiplied by [((1 + r) to the n) minus 1] divided by r. The Roth-versus-traditional comparison reduces to one question, whether your marginal rate in retirement will exceed your marginal rate today, with a thumb on the scale for the Roth because a maximum contribution shelters more real money when the tax has already been paid. Contribution limits are 7,000 dollars a year, or 8,000 with the age-50 catch-up, and direct contributions phase out over a modified adjusted gross income band that sits in the mid-100,000s for single filers and low-200,000s for joint filers. Roth IRAs are also exempt from required minimum distributions during the owner's lifetime. The caveats are that a single fixed return understates real volatility, that the entered future tax rate is a guess, and that Congress can change the rules over a 30-year horizon.

The individual retirement account was created by the Employee Retirement Income Security Act of 1974, but for its first two decades it offered only the deductible, tax-deferred structure now called the traditional IRA. The Roth variant arrived with the Taxpayer Relief Act of 1997 and became available on January 1, 1998. It is named for Senator William V. Roth Jr. of Delaware, then chairman of the Senate Finance Committee, who had pushed for a savings account taxed on the way in rather than on the way out. The original annual limit was 2,000 dollars, and income ceilings restricted who could contribute directly from the start. Several later laws widened it. The Economic Growth and Tax Relief Reconciliation Act of 2001 raised contribution limits on a schedule, added the catch-up contribution for savers aged 50 and over, and authorized the Roth 401(k), which became available in 2006 and was made permanent by the Pension Protection Act that year. The Tax Increase Prevention and Reconciliation Act of 2005 repealed the 100,000 dollar income cap on Roth conversions effective in 2010, which is what made the so-called backdoor Roth contribution possible for high earners. More recently, the SECURE Act of 2019 reshaped inherited-account rules and SECURE 2.0, enacted in December 2022, removed required minimum distributions from Roth 401(k) accounts beginning in 2024.