Fidelity Roth IRA Calculator: How Much Will My Roth IRA Be Worth When I Retire?

You can adjust the assumptions about inflation and tax rates to see how things play out differently. For example, if you live in California and don't plan on retiring there, you can use this calculator to figure out how much you'd need to save for retirement in Texas.

The Roth IRA Calculator uses data from the IRS, the Bureau of Labor Statistics, and the Social Security Administration.

How Can a Roth Calculator Can Help Investors

Roth IRA calculators are designed to help investors determine whether they should contribute to their retirement accounts. These calculators take into account several factors including age, income, and tax rate. However, some people may not know how these factors affect them. Here are three things investors need to consider before using a Roth calculator.

Age

The first thing investors need to think about is their age. If they are under 50 years old, then they have until 59 1/2 to make contributions. On the other hand, if they are over 50 years old, then the deadline is at 70 1/2.

Income

Investors’ incomes play a big role in determining whether they qualify for making contributions. People who earn less than $133,000 per year cannot make any contributions. Those who earn between $133,001 and $166,500 can put away only $2,600 each year. In addition, those who earn more than $166,501 can only contribute $5,500 annually.

Tax Rate

Another factor that affects investors is their tax rates. Taxpayers who pay taxes at lower rates can save money by contributing to their retirement accounts. However, high-income earners who pay higher rates can benefit from putting money into their accounts.

Annual contribution

The IRS defines a "contribution" as the sum of cash or property you give to an individual retirement account (IRA). You must make a contribution to receive a deduction. If you're single, the contribution limit is $5500; if you're married, it's $11,500.

A "contribution limit" refers to the total amount you can contribute during one calendar year. This includes your traditional IRA contribution plus any additional amounts you want to add to your account. Your contribution limit depends on whether you're single or married, how old you are, and whether you've ever contributed to an IRA before.

If you're single, your contribution limit is based on your modified adjusted gross income (MAGI), which is calculated by adding together your taxable income, your Social Security benefits, and certain miscellaneous items such as alimony payments and gambling winnings.

If you're married, your contribution limit is determined by figuring out how much you and your spouse combined earned in 2017. Then subtract your MAGI from the total.

For example, let's say your husband makes $100,000 and you earn $40,000. Their combined MAGI is $140,000. So your contribution limit for 2018 is $140,000 – $70,000 $70,000.

You don't have to use the same method to figure out your contribution limit every year. But you do have to know your MAGI for the prior year.

Age at retirement

Your retirement date will depend on many factors including your actual age, your current salary, savings rates, health status, and whether or not you are married. There are several ways to calculate your retirement age. One way is to use the following formula:

Retirement A + B * (C – D)

Where:

A Number of Years Worked

B Monthly Savings Rate

C Current Salary

D Annual Cost Of Living Increase

Expected rate of return

A 6% rate of return assumption assumes that the investment will grow at a constant rate over time. In reality, rates of return fluctuate based on market conditions. For example, during periods of low interest rates, investors might receive less than a 6% rate of return. Conversely, during times of high interest rates, investors might see a greater than 6% rate of return on their investments.

Your actual rate of return depends upon the amount invested, the type of investments selected, and whether or not there is inflation. For example, if you invest $10,000 today, it could earn more than $6,000 in 30 years if the stock market grows at a 5% annual rate. However, if you invest $100,000 today, it might only grow to $50,000 in 30 years because of inflation.

If you want to maximize your potential returns, consider selecting investments such as stocks and bonds. These types of investments tend to provide better long term growth than cash or CDs.

Roth IRAs offer another option for retirement savings. Unlike traditional IRAs, contributions to Roth IRAs do not reduce your taxable income. Instead, the earnings on your contributions are withdrawn tax free once you retire. This allows you to keep more of your earnings without having to pay taxes on those earnings.

Investors who contribute $5,000 per month for 20 years would have a balance of $1,063,500 after 20 years.

Marginal tax rate

The marginal tax rate is the percentage of earnings taxed each dollar you earn above some threshold amount. For example, let’s say you make $100,000 per year. Your marginal tax rate is 20%. This means that every additional dollar you make over $100,000 is subject to 20% Roth federal income tax. If you make $150,000, your marginal tax rate is still 20%, because it doesn’t matter how much you make above $100,000. You are still being taxed at 20% on everything you earn.

If you make $1 million per year, your marginal tax rate jumps to 33.3%. This means that every extra dollar you make above $1 million is taxed at 33.3%. So if you make $2 million, your marginal tax rate rises to 50%. And if you make $5 million, your marginal tax rises to 75%.

Maximize contributions

Contributions to Individual Retirement Accounts are one of the best ways to save for retirement. But it can be confusing to figure out how much you can contribute each year without running afoul of IRS rules.

There is no limit on how many times you can make a contribution to a traditional IRA. You can also contribute up to $5,500 ($6,500 if you're 50 or older), plus an additional $1,000 catch-up contribution for those 55 and older. If you do decide to max out your 401(k), you'll still be able to contribute to a traditional IRA.

The annual limit on contributions to a Roth IRA is far less generous. You can contribute a maximum of $19,500 ($20,500 if you're married filing jointly). And while you don't have to wait until April 15th to contribute, you won't be eligible for a tax break unless you've been working for at least three months.

If you want to maximize your contributions to both types of accounts, consider taking advantage of the "catch-up" provision. You can contribute an extra $1,000 in 2018 if you had zero dollars invested in either type of account during 2017.

Total taxable savings

The Tax Policy Center estimates that the average taxpayer will save $1,100 per year because of the GOP tax plan. This includes the benefits of lower corporate tax rates, fewer deductions, and smaller standard deduction. But it doesn't include some key changes like the elimination of personal exemptions, which could mean families are paying less money in total.

You can calculate your marginal tax rate by dividing your adjusted gross income by $10,950. If you're single, your marginal tax rate is 28%. For married couples filing jointly, the marginal tax rate is 32% and for heads of household, it's 34%.

If you want to see what your actual tax bill will look like, use our calculator here.

Roth total at retirement

The total Roth IRA value at retirement depends on how much money goes into the account every year. For example, if you contribute $5,000 per month for 40 months, you'll end up with about $100,000. But what happens if you start withdrawing funds early? You could be hit with a big tax bill.

If you withdraw before age 592/4, you will be taxed on the amount withdrawn plus a 10% penalty. Withdrawals over age 712/3 are subject to an additional 10%, unless you file a return and pay income tax on those withdrawals.

Frequently Asked Questions

How much will my Roth IRA be worth at retirement?

If you're planning to retire early, it might make sense to contribute to a Roth IRA. You'll avoid paying taxes on your earnings while withdrawing money tax-free in retirement, but there are some important things to consider.

The biggest benefit of contributing to a Roth IRA is that you won't owe federal income taxes on contributions and earnings when you take withdrawals later in life.

But there are some downsides too. For example, you'll lose out on potential tax breaks that come with traditional IRAs. And since you don't receive a deduction for making contributions, you'll end up paying taxes on your earnings sooner.

When I withdraw from my IRA, am I withdrawing money or shares?

If you're planning to take some retirement savings out of an individual retirement account (IRA), here's what you need to know about how withdrawals work.

A few weeks ago, we told you about a couple of ways to make tax-free withdrawals from IRAs. One involves taking out a lump sum and directing it into another IRA -- say, a brokerage account -- while the other allows you to take out the same amount as a monthly payment over several months.

We've since learned that both methods require a little extra work. But one option, called "withdrawing from an IRA," is easier than the others. So let's break down what happens when you take money out of an IRA.

Withdrawing From Your IRA

You'll probably start hearing people talk about "withdrawing from a Roth IRA." A Roth IRA is different from a traditional IRA because contributions come pre-tax, meaning no taxes are taken out of your paycheck. Instead, you contribute money to the IRA, and the earnings grow tax free. Withdrawals are taxed like regular income, though.