IRA Calculator Online Free Tool
IRA Calculator
IRA Parameters
2025 limit: $7,000 (under 50) / $8,000 (50+)
Results at Age 65
| Traditional, SIMPLE, or SEP IRATraditional IRA | Roth IRA | Regular Taxable SavingsTaxable | |
|---|---|---|---|
| Balance at age 65 | $0 | $0 | $0 |
| Balance at age 65 (after tax) | $0 | $0 | $0 |
Balance Accumulation Graph
Annual Schedule
| Age | Traditional/SIMPLE/SEP IRA (Before Tax)Trad. IRA (Before Tax) | Traditional/SIMPLE/SEP IRA (After Tax)Trad. IRA (After Tax) | Roth IRA (After Tax) | Regular Taxable Savings (After Tax)Taxable (After Tax) | ||||
|---|---|---|---|---|---|---|---|---|
| Start | End | Start | End | Start | End | Start | End | |
What is an IRA?
In the United States, an IRA (Individual Retirement Account) is a type of retirement plan with taxation benefits defined by IRS Publication 590. It is a government tax break designed to incentivize people to invest money for retirement. IRAs offer significant tax advantages that can help your retirement savings grow faster than regular investment accounts.
Key Benefits of IRAs
Tax Advantages
Either tax-deductible contributions (Traditional) or tax-free withdrawals (Roth)
Tax-Sheltered Growth
Investments grow without annual tax burden on gains and dividends
Retirement Security
Build substantial wealth for retirement through compound growth
Investment Flexibility
Wide range of investment options including stocks, bonds, and funds
Among the different IRAs, the most common are Traditional IRAs and Roth IRAs. The contributions to a Roth IRA are not tax-deductible, but the withdrawals after retirement are tax-free. Conversely, the contributions to a Traditional IRA are tax-deductible but are taxed on withdrawals after retirement.
Important consideration: For most people, their expected income after retirement will be lower than during working years. Therefore, their expected marginal tax rates after retirement will likely be lower. As a result, they may find that Traditional IRAs are more financially beneficial because taxation occurs in retirement (at lower rates) rather than during prime working years.
Types of IRAs Explained
Traditional IRA
As the most common IRA in use, Traditional IRAs are qualified retirement plans that have tax shields in place for funds set aside for retirement. They are ideal for people who want to reduce their tax bill while simultaneously saving for retirement.
Tax Treatment: Contributions are tax-deductible for most people (subject to income limits)
Withdrawals: Taxed as ordinary income; penalty-free after age 59½
RMDs: Required Minimum Distributions mandatory starting at age 73
2025 Contribution Limit: $7,000 (under 50) / $8,000 (50+)
Best For: Individuals seeking immediate tax deductions and expect lower tax rates in retirement
Roth IRA
These are often initiated and managed by individuals with contributions coming from after-tax income or assets. Investment income is tax-free, and withdrawals are tax-free. After turning age 59½, withdrawals from Roth IRAs are penalty-free. However, Roth IRA withdrawals are not mandatory during the owner's lifetime.
Tax Treatment: Contributions made with after-tax dollars (not deductible)
Withdrawals: Completely tax-free in retirement (qualified distributions)
RMDs: No required minimum distributions during owner's lifetime
Income Limits: Phase-out ranges apply (2025: $146K-$161K single, $230K-$240K MFJ)
Best For: Young investors and those expecting higher tax rates in retirement
SEP IRA (Simplified Employee Pension)
SEP IRAs are initiated by employers and allow employers to make contributions to the IRA accounts of their employees. Mostly used by small businesses or self-employed individuals, they are designed to be easier to set up than other employer-sponsored retirement plans.
Contribution Limit (2025): Lesser of 25% of gross income or $70,000
Tax Treatment: Functions similarly to Traditional IRA (tax-deferred growth)
Vesting: All proceeds are immediately 100% vested
Employer Deduction: Contributions are tax-deductible business expenses
Best For: Self-employed individuals and small business owners with high income
SIMPLE IRA (Savings Incentive Match Plan for Employees)
SIMPLE IRAs are mainly designed for small businesses with 100 or fewer employees. The administrative costs are much lower than those required by a 401(k). Employers must choose between two matching options for their employees.
Contribution Limit (2025): $16,500 (plus $3,500 catch-up for 50+, $5,250 for 60-63)
Employer Matching: Either 3% match or fixed 2% of compensation
Early Withdrawal Penalty: 25% penalty (vs 10% for Traditional/Roth)
Withdrawal Restriction: Can only be cashed out penalty-free after two years
Best For: Small businesses seeking simple, low-cost retirement plans for employees
Traditional IRA vs. 401(k)
Traditional IRAs and 401(k)s are two of the most popular tax-deferred, defined contribution retirement plans. Both turn pre-tax income into tax-deductible contributions placed into retirement plans that receive tax-sheltered growth, with the goal of incentivizing saving for retirement.
| Feature | Traditional IRA | 401(k) |
|---|---|---|
| Setup | Individual - can open at most financial firms | Employer-sponsored program |
| 2025 Contribution Limit | $7,000 / $8,000 (50+) | $23,500 / $31,000 (50+) |
| Employer Match | None | Often available (typically 3-6%) |
| Investment Options | Almost limitless | Limited to employer's offerings |
| Administrative Fees | Generally lower | Can be relatively high |
| Income Limits | Yes (if covered by workplace plan) | None |
Optimal Strategy
If your 401(k) has a contribution match, contribute at minimum the amount your company is willing to match—that's free money! After securing the match, you can decide whether to continue contributing to your 401(k) up to the annual limit or diversify by contributing to an IRA. In 2025, it's possible to contribute the maximum to both ($23,500 to 401(k) and $7,000/$8,000 to IRA), provided you meet income requirements.
IRA Rollovers & Consolidation
Existing qualified retirement plans, such as 401(k)s, 403(b)s, SIMPLE IRAs, or SEP IRAs, can be "rolled over" or consolidated into a Traditional IRA. Many other plans, including 457 plans or inherited employer-sponsored plans (for designated beneficiaries), can also be rolled over.
Rollover Benefits
- ✓Consolidate multiple retirement accounts for easier management
- ✓Access to broader investment options than employer plans
- ✓Potentially lower fees and administrative costs
- ✓No taxes due when rolling over directly into IRA
Important Considerations
- !Report all rollovers on tax returns (Form 1099-R and 5498)
- !Traditional and Roth IRA funds must be kept separate
- !Cashing out triggers early withdrawal penalties and taxes
- !Consider leaving funds in old 401(k) if fees are low
Note: Early withdrawals from IRAs or 401(k)s are both subject to a 10% penalty along with standard income taxes (unless you qualify for exceptions like first-time home purchase, disability, or medical expenses).
Investment Options in an IRA
One beneficial aspect of IRAs is that they are available through most financial firms with ample investment options to choose from. The following are common options along with their strengths and weaknesses.
Mutual Funds & Index Funds
A mutual fund is a pool of money managed by a fund manager. Index funds are mutual funds based on market indexes like the S&P 500. Both offer a hands-off approach to investing.
Individual Stocks (Active Investing)
Requires hands-on approach with investors actively picking stocks. Can generate higher returns but carries significant risk. Not recommended for beginners.
Robo-Advisors
Automated systems that manage investments using low-cost algorithms. Can set up customized, diverse portfolios within minutes, adjusted periodically based on preferences.
Alternative Investments
IRAs can hold precious metals, real estate investment trusts (REITs), annuities, or Certificates of Deposit (CDs). Self-directed IRAs allow even more options.
Prohibited Investments
The following are not allowed in any IRA: Life insurance, S corporations, collectibles, antiques, art, personal real estate used as residence or rental income, and certain derivative positions.
Key Takeaways & Best Practices
✓ Best Practices
- • Start contributing as early as possible to maximize compound growth
- • Max out employer 401(k) match before considering other options
- • Consider both Traditional and Roth IRAs based on your tax situation
- • Diversify investments within your IRA to manage risk
- • Review and rebalance your portfolio annually
- • Contribute consistently—automate if possible
💡 Strategic Tips
- • Use Traditional IRA if you need current tax deduction
- • Choose Roth IRA if you expect higher future tax rates
- • Self-employed? Consider SEP IRA for higher contribution limits
- • Small business owner? SIMPLE IRA offers employer matching
- • Keep detailed records of all contributions and conversions
- • Consult a financial advisor for personalized strategies
Remember: IRAs are powerful wealth-building tools that offer significant tax advantages. Whether you choose Traditional, Roth, SEP, or SIMPLE, the most important factor is to start early and contribute consistently. The tax shields and compound growth over decades can result in substantially more retirement savings than regular taxable accounts. Use this calculator to model different scenarios and make informed decisions about your retirement planning strategy.