IRA Calculator: Roth vs. Traditional

Introduction

When it comes to saving for retirement, you have two main options: a traditional IRA or a Roth IRA. Both accounts offer tax benefits, but they have different rules and contribution limits. To decide which one is right for you, it's important to understand the differences between the two.

Traditional IRA

A traditional IRA is a tax-deferred retirement account. This means that you don't pay taxes on your contributions or earnings until you withdraw the money in retirement. However, your withdrawals are taxed as ordinary income.

There are no income limits for contributing to a traditional IRA. However, your contributions are limited to $6,000 per year for 2023 ($7,000 if you're age 50 or older).

Roth IRA

A Roth IRA is a tax-free retirement account. This means that you don't pay taxes on your contributions or earnings, even when you withdraw the money in retirement. However, there are income limits for contributing to a Roth IRA.

For 2023, the income limits are:

• Single: $138,000 ($218,000 for married filing jointly)
• Married filing separately: $10,000 ($20,000 for married filing jointly if your spouse also contributes to a Roth IRA).

The contribution limits for Roth IRAs are also lower than the limits for traditional IRAs. For 2023, you can contribute up to $6,500 to a Roth IRA ($7,500 if you're age 50 or older).

Which One Is Right for You?

The best way to decide which type of IRA is right for you is to compare your current income and tax bracket to your expected income and tax bracket in retirement. If you expect to be in a higher tax bracket in retirement, then a traditional IRA may be a better choice. This is because you will get a tax deduction on your contributions now, and you will pay taxes on your withdrawals at a lower rate later.

However, if you expect to be in a lower tax bracket in retirement, then a Roth IRA may be a better choice. This is because you will pay taxes on your contributions now, but you will be able to withdraw your money tax-free in retirement.

IRA Calculator

An IRA calculator can help you determine how much you need to contribute each month to reach your retirement savings goals. There are many different IRA calculators available online. To use an IRA calculator, you will need to provide the following information:

• Your age
• Your current salary
• Your expected retirement age
• Your expected income in retirement
• Your desired retirement savings goal

Once you have entered this information, the IRA calculator will generate a savings plan that will help you reach your goal.

Conclusion

Choosing the right type of IRA is an important decision. By understanding the differences between traditional IRAs and Roth IRAs, you can make an informed decision that will help you save for a secure retirement.

Frequently Asked Questions

• What is the difference between a traditional IRA and a Roth IRA?

A traditional IRA is a tax-deferred retirement account, while a Roth IRA is a tax-free retirement account.

• Which type of IRA is right for me?

The best way to decide which type of IRA is right for you is to compare your current income and tax bracket to your expected income and tax bracket in retirement.

• How much can I contribute to an IRA?

The contribution limits for traditional IRAs and Roth IRAs are different. For 2023, the limit for traditional IRAs is $6,000 ($7,000 if you're age 50 or older). The limit for Roth IRAs is $6,500 ($7,500 if you're age 50 or older).

• Can I withdraw money from my IRA before I retire?

Yes, you can withdraw money from your IRA before you retire. However, you may have to pay taxes and penalties on your withdrawals.