Roth IRA Calculator
Most financial institutions have web-based Roth IRA calculators so you can use it at any time free of charge. However, you have to know that the results from each calculator can be different based on assumptions and input information. To get more reliable results, it's very important for you to take many factors into account and understand that the results may vary depending on the factors.
If you already have Roth IRA accounts, you may consider the sum of the accounts as a starting balance. If you plan to convert or rollover other retirement accounts to a Roth IRA, the conversion amount may be the current balance. Otherwise, the current balance will be zero. Current age Your current age is the starting point of your retirement savings period. A Roth IRA doesn't have an age limit for contributions. So if you have earned income, you can open a Roth IRA no matter how old you are. Annual contribution How much money do you want to contribute to your Roth IRA each year? As we know, the Roth IRA contribution limits may adjust every year for inflation. And if you earn more than the phase-out range, you may not make any contribution. However, many calculators assume that you contribute same amount each year and your income doesn't limit your contribution ability. So if you want more realistic results, you need to use a calculator which has a function to set different amounts each year. Expected retirement age Most calculators assume that you don't contribute to your Roth account after you retire. Therefore, the expected retirement age is the last year you make a contribution. Life expectancy Life expectancy determines how long you will withdraw money from your Roth account. If the calculator uses an annuity payout option, the annual retirement income from your Roth IRA will be determined by your life expectancy. Expected rate of return This is the anticipated average annual rate of return on your Roth investments from the current age to the expected retirement age. Most calculators assume that the return is compounded annually. Therefore, even 1% difference of the return may result very big difference for the retirement money. And make sure whether the contributions are made at the beginning of the year or the end of the year. Expected rate of return during payout period This is the anticipated average annual rate of return on your Roth investments during the retirement income payout period. Even though you don't contribute during this period, the remaining balance grows continuously. Therefore, this rate of return may affect the expected annual retirement income. Payout options Many Roth IRA calculators assume that a lump sum will be withdrawn at one time in the retirement age. However, it's not realistic for retirees to use money in that way. Instead, you may withdraw money as planned or may not use money ever. Current tax rate You need to know your income tax bracket. For more reliable results, you'd better include all applicable federal, state and local taxes. In fact, tax rates may change in the future. However, for the calculation purpose, they are assumed not to change until the retirement age. Expected tax rate during retirement In fact, you may not have to much worry about this factor because qualified Roth IRA distributions may be tax-free. However, if you want to compare your Roth IRA investment return with return of other retirement account, you need to anticipate the tax rate during retirement. Expected inflation For most practical results, Roth IRA calculators may require the expected inflation. If you take inflation into consideration, you may want to increase your retirement income every year.
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