Roth IRA Calculator

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What is a Roth IRA?

The Roth IRA is a retirement savings plan that offers added tax benefits with the certain requirements. The contribution made in Roth IRAs is non-deductible. The contribution is made after-tax amount. So the amount grows in the account doesn’t have taxation for that amount. At the time of withdrawal, the investor doesn’t have to pay any income tax.

The benefits of Roth IRA:

  • Low contribution limit but the investor can use it in addition to the 401(k) plan.
  • The investor can make an extra contribution after the age of 50 years.
  • The amount is not separated for distribution as the Roth IRA can be passed on the heirs of the investors.
  • The contributions are made with the after-tax amount. The large amount can be saved on tax, as there are chances of increase in the income tax.
  • As the taxes are already paid the investor can withdraw the amount without tax and penalty.
  • There is no limitation on how to use the contribution money, but the distributions of earned money may be taxed.

Pros and cons of Roth IRA:

Pros:

  • Free withdrawal on contributions.
  • The funds can be withdrawn at the time of emergency, as it is tax-free.
  • Tax-free retirement income.
  • It has many investment options.
  • No age limit for withdrawing the funds.
  • No reported on FAFSA as the asset.
  • The heir of the investor can use Roth IRA.
  • Tax should be paid on the distribution from the retirement.

Cons:

  • Taxes are paid upfront as the contributions are made after the taxation.
  • Low contribution limit.
  • High-income earners are not eligible for Roth IRA.
  • Does not reduce taxable income.
  • Minimum holding period the distributions will be started early.
  • Charitable donation funds get low returns.

Contributions to the Roth IRA:

The regular Roth IRA contributions have to be paid in the form of cash and it cannot be made in the form securities. There are different investment options within the Roth IRA plans. Once the contributions are made it can be included with mutual funds, bonds, EFTs, CDs, stocks and money market funds. A Roth IRA can be funded from several sources such as regular contributions, spousal IRA contributions, transfers, rollover contributions, conversions, and Recharcterizations.

The components included in the Roth IRA are:

  • Current balance: The current balance in the IRA.
  • Annual contribution: The annual contribution to IRA after taxation.
  • Investment returns: The annual return on the investment.
  • Current age: The current age of the investor.
  • Retirement age: The retirement age of the investor.
  • Marginal tax rate: The marginal tax rate at the time of contribution.
  • Inflation rate: The inflation rate of the amount invested.

This particular Roth IRA calculator is used to calculate the Roth IRA savings balance and compare the Roth IRA with regular taxable savings.