Roth IRA calculator—predict your retirement income
How can two people work the same job, with the same pay, yet have vastly different amounts of retirement savings? It all comes down to planning and execution.
The IRA calculator below can help you set your retirement goals and fine-tune your retirement savings, so you know what you need to do to work towards retiring comfortably.
How this Roth IRA calculator works
You can use this calculator to gauge how much their portfolios will grow if you make regular contributions and achieve an expected rate of return.
The Dinkytown Roth IRA calculator lets you input details like your age, annual contribution, current portfolio size, expected rate of return, and other details to determine how much you must contribute to your Roth IRA to reach key milestones.
You can modify the numbers to determine how working a little longer or achieving an 8% annualized return instead of a 7% annualized return, for example, will impact your portfolio when you reach your retirement age.
Key Roth IRA Terms
If you’re navigating the Dinkytown Roth IRA calculator for the first time, the amount of inputs may feel a little overwhelming. Here’s a breakdown of the key terms you need to know to get the most out of the IRA calculator:
- Starting balance: This metric lets you enter your Roth IRA’s current balance.
- Annual contribution: You can set any dollar amount as an annual contribution, up to the limit imposed by the IRS.
- Current age: The calculator uses your age to assess how many years you have until retirement.
- Age at retirement: This Roth IRA calculator sets this number to 65 by default, but you can provide a higher number if you intend to work longer.
- Expected rate of return: The expected rate of return, also known as your annualized return, is critical for gauging how much your Roth IRA will grow each year. Dinkytown sets the expected rate of return at 7%, but you can adjust it.
- Marginal tax rate: This tax rate reflects the percentage you’ll pay to the government after realizing gains from your investments. The marginal tax rate only applies to traditional IRAs, since Roth IRA distributions are not subject to taxation. Dinkytown provides a chart that shows how your marginal tax rates vary based on your income and filing status.
- Total contributions: This number is automatically calculated based on your annual contribution and the number of years you plan to work.
- Maximize contributions: This option lets you increase future contributions to the maximum the IRS allows.
Understanding Your Roth IRA Calculator Results
Any Roth IRA calculator lets you see how much your portfolio will grow if the calculations remain true.
However, some factors can change. For instance, your actual return may differ from the expected rate of return, which will significantly impact your portfolio’s total returns. You can increase your total contributions as the IRS raises the maximum Roth contribution limit.
Contributing more money in certain years, as the IRS raises its limits, will help you maximize your contributions along the way to retirement. Marginal tax rates can also change based on federal policies and changes to your income.
Early withdrawal penalties can also have a significant impact on your retirement savings.
Scenarios: Why You Should Project Your Own
The Dinkytown Roth IRA calculator can help anyone plan for retirement and build their nest egg.
Individual #1
A 50-year-old with a $100,000 portfolio who wants to retire at 65 can use this calculator to determine if that goal is realistic.
This same individual can also determine how much they must contribute annually to achieve that goal. Luckily for this 50-year-old, they qualify for catch-up contributions, which increase their annual contribution limit to $8,000.
Making the maximum contribution until age 65 results in $120,000 in total contributions. Then, if the individual expects an 8% annualized return, they will end up with a projected $551,811 portfolio.
People who live in areas with low costs of living can retire on that amount. However, if that person wants to retire with a $700,000 portfolio, they would have to work until they are 68, assuming the other calculations stay the same.
Individual #2
You don’t have to be approaching retirement to benefit from this calculator. A 25-year-old who is starting from scratch can determine how much they’ll have in their Roth IRA before they turn 70.
Using a more conservative 7% expected rate of return, contributing $4,000 per year would result in a projected $1.2 million portfolio.
While that’s a solid portfolio, contributing $5,000 per year instead of $4,000 per year results in a more impressive $1.5 million portfolio. But it gets even better if the 25-year-old can make the maximum contribution each year. Then, the portfolio is projected to grow to $2.2 million.
This exercise demonstrates the impact of reaching the maximum contribution amount compared to contributing a smaller amount to your Roth IRA each year.
What to know about Roth IRAs
Roth IRAs allow you to make post-tax contributions to your retirement account. Although Roth IRA contributions won’t lower your current tax bill, distributions are tax-free. You won’t even owe taxes on the capital gains. To qualify for tax-free Roth IRA distributions, you must be at least 59 ½ years old and have held your Roth IRA for at least five years.
Early withdrawals will result in a 10% penalty fee. If you withdraw funds early, you only pay taxes on the capital gains instead of the entire amount that you withdraw.
Roth IRA providers
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What are the 2024 IRA contribution limits?
The IRS periodically raises IRA contribution limits. The limit is the same regardless of whether you use a traditional or a Roth IRA. You can split the maximum IRA contribution limit between accounts, but opening additional IRA accounts will not increase your maximum contribution limit. The IRS raised its annual contribution limit from $6,500 to $7,000 in 2024.
Your taxable income must exceed the contribution limit to make the maximum contribution. For instance, a taxpayer who earns $4,000 in taxable income in 2024 can only contribute up to $4,000 to their IRA for the calendar year.
What are the 2024 income limits for IRAs?
Traditional IRAs do not have any income limits. However, the IRS imposes income limits for Roth IRA contributions based on your modified adjusted gross income (MAGI). Luckily, you can still choose between a traditional IRA or a Roth IRA if you have a high MAGI. You can use the backdoor method to transfer funds from a traditional IRA to a Roth IRA instead of making a direct contribution to your Roth IRA. This chart shows Roth IRA MAGI limits.
2024 income limits for IRAs
3 Roth IRA investment strategies to boost your savings
Accumulating savings in your Roth IRA can set you up nicely by the time you are ready to retire. These Roth IRA investment strategies make it easier to maximize your contributions and grow your portfolio.
Make Catch-Up Contributions
You can contribute an additional $1,000/yr to your IRA when you turn 50. Capitalizing on those extra contributions can result in an additional $20,000 in contributions by the time you turn 70. That doesn’t even include compounded returns.
Invest in Promising Assets
ETFs that track major indices like the S&P 500 and Nasdaq Composite have more potential than bonds. Increasing your expected rate of return without taking excessive risks can get you closer to your long-term retirement goals. However, it’s a good idea to avoid risky assets like penny stocks when investing your IRA funds.
Work a Few Extra Years
Retiring at 70 instead of 65 gives you extra time to contribute to your retirement account. The funds in your retirement account also have additional time to grow since you aren’t withdrawing from them just yet.
FAQs about Roth IRAs
Marc Guberti is a certified personal finance counselor and a freelance writer who resides in Scarsdale, New York. His work has been featured in US News & World Report, Newsweek, InvestorPlace, and other publications.
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