Roth IRA Calculator​

Roth IRA

Calculate Clear Help

Roth IRA Calculator

Reviewed by:
Michael Villarica
Michael Villarica

Michael Villarica

CTO

Michael Villarica is a CTO in Arrowroot Family Office, assisting in managing investments for clients and specializes in the information technology software of the company.

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Roth IRA Calculator​
Roth IRA Calculator​

Roth IRA

Calculate Clear Help
Saving for retirement can be a confusing and challenging undertaking; how does an individual or family position themselves to have a secure retirement? A retirement calculator such as the one above can help provide answers to pressing questions such as which investment vehicle is best and how much money needs to be contributed per year to meet the retirement goals and objectives set by the individual or family. This calculator will highlight the investment power of the Roth IRA and demonstrate if this investment vehicle is a proper fit. This calculator will also determine the required yearly contribution needed to retain a set preferred yearly withdrawal amount, as well as provide the value of the investment account at retirement.
Table of Contents hide
  1. Roth IRA Overview
  2. Roth IRA Calculator Values
  3. How to Use a Roth IRA Calculator
    1. Tax Bracket Percentage
    2. Contribution and Withdrawal
    3. Yearly Rate of Return
    4. Output
    5. FAQs

Roth IRA Overview

Individual retirement accounts, or IRAs, are tax-deferred investment accounts. A Roth IRA, specifically (Individual Retirement Account), is non-tax-deductible, which means that as long as all conditions are met, earnings can grow tax-free, with tax-free withdrawals in retirement. This differs from a traditional IRA which can have its contributions deducted from one’s current yearly tax return, which reduces an individual’s taxable income. These tax benefits provide more significant long-term incentives to investing and can be opened at most banks, robo-advisor services, and online brokers.

Roth IRA Calculator Values

The following instruction will demonstrate how to properly use the Roth IRA calculator to calculate one’s yearly contribution, yearly withdrawal amount, and total value at retirement. Visible are current values that can be changed

  • Return on Investment During Contribution
  • Yearly Contribution
  • Years of Contribution
  • Years of Withdrawals
  • Yearly Rate of Return

These are the values one would input into the calculator in order to receive the following retirement metrics:

  • Yearly Contribution
  • Value at Retirement
  • Yearly Withdrawal
  • Tax on Withdrawal
  • Take Home Amount on Yearly Basis

How to Use a Roth IRA Calculator

Tax Bracket Percentage

The first objective is to input the tax bracket percentage during the years of contribution. This value is a percentage calculated based on an individual’s earning level and filing status. Taxfoundation.org is a beneficial resource that can assist with finding this information. Understanding tax percentage in terms of the Roth IRA calculator is helpful in calculating the amount that can be taken from the overall take-home annual amount. Because Roth IRAs are taxed during contribution, one would not have to worry about taxes during withdrawal (retirement) as one would with a traditional IRA.

Contribution and Withdrawal

The next step involves understanding what a comfortable yearly contribution amount would look like that also coincides with the set financial budget for the year and the following years of arranged contribution. One could do this by inputting the estimated amount of years left from now to retirement. This way, one can keep saving and investing up until the year they quit working, alleviating enough money to have a successful financial future.

Afterward, one can calculate the years of withdrawal. This should be an estimate consisting of the total number of years one believes to have during retirement. Typically, saving 30 years of withdrawals is ideal to ensure that funds do not run out ahead of time. A good piece of information to keep in mind is that often funds could also be passed down to family and relatives.

Yearly Rate of Return

Lastly, insert the estimated yearly rate of return. The average rate of return is typically around 7%, so if one is expecting a moderate return, it is wise to include this percentage. A portfolio compromised of low-risk assets could see a lower return on investment of around 5% on average. In comparison, a portfolio of high-risk assets could see a much higher average return rate closer to 10%. Evaluating and understanding the risk tolerance of one’s portfolio is essential. This will help in putting a proper rate of return in accordance to the risk appetite of the portfolio into the calculator and retain exact results.

Output

After completing all the steps and entering the final input, click submit to receive the calculation result. The first input one would see is the yearly contribution. The annual contribution amount is linked and copied from the initial input to illustrate the contribution value compared to the overall calculated value at retirement, which is the subsequent output. From there, an individual can understand, based on calculations, how much one can withdraw each year. Because this is a Roth IRA, one will only be taxed pre-retirement and not upon withdrawal (retirement) as one would with a Traditional IRA.

This calculator is the perfect tool to determine the required yearly contribution needed to achieve the desired yearly withdrawal amount. Check out the Traditional IRA calculator to compare the two investment vehicles and see which suits investment needs better.

FAQs

Roth IRA allows one to contribute after-tax money to a retirement investment account. This means one can avoid tax on one’s contributions, which can’t be done with a traditional IRA. In exchange, one’s money grows tax-free and can be withdrawn tax-free at retirement, which is 59 ½ or older.
In general, one should get a Roth IRA if one believes they will be in a higher tax bracket when they retire. This includes anyone earning low income at the current moment. One will pay taxes now, at a lower rate, and withdraw funds tax-free in retirement when they are in a higher tax bracket.
One is never not too old to get a Roth IRA. Opening a Roth IRA later in life during retirement means one does not have to worry about the early withdrawal penalty on earnings at age 59½ and below. No matter when one opens a Roth IRA, one must wait five years to withdraw the earnings tax-free.
A Roth IRA account is often best for younger individuals rather than a traditional IRA.. Younger savers in their 20s tend to have lower incomes and reside in the lower tax brackets. This means that they would benefit less from tax-deductible contributions that a traditional IRA contains for those in higher brackets.
A benefit Roth IRA provides is that money invested grows tax-free. This means that one does not have to worry about reporting investment earnings when filing taxes.
Contributions to a Roth IRA are not deductible, This means that they are not required to be reported as investment contributions on one’s tax returns.
One can withdraw investment earnings without penalties on taxes for anyone over the age of 59½ or older. No matter the age one must and have had a Roth IRA account for at least five years before withdrawal to not incur any penalties.
Money from a Roth IRA can be given to a family member or relative, donated to a charity, or used to purchase other investment assets. However, if one’s gift of money surpasses a certain amount, one may be required to file a gift tax return.
This material contains opinions of the author, but not necessarily those of Arrowroot Family Office LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Arrowroot Family Office, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
401k Calculator is a tool that helps you to calculate the total amount of money you could save during until your retirement age. Just enter the required details in the boxes, click calculate button and it will automatically calculate the results for you. 401k plans are subject to complex regulations and qualification requirements. Consult a qualified professional before making any decisions.
401k Calculator is a tool that helps you to calculate the total amount of money you could save during until your retirement age. Just enter the required details in the boxes, click calculate button and it will automatically calculate the results for you. 401k plans are subject to complex regulations and qualification requirements. Consult a qualified professional before making any decisions.