Roth individual retirement accounts (IRAs) are powerful tools for building tax-free savings in retirement. If you’ve got one already or plan to open one soon, use our Roth IRA calculator to see how much you can save for retirement.
Roth IRA Calculator: Our Assumptions
For the best results, you’ll want to use information that matches your current finances. If you don’t have that information ready, here’s what we’ll assume for you.
- Year: 2021. The year you make your contributions determines how large they can be as the government periodically raises contribution limits. While you can sometimes invest money in a Roth IRA for a prior year, provided you do so before the federal tax filing deadline for that year, we’re assuming you’re making your contributions from this year on.
- Tax Filing Status: Single. Your relationship status (and household income) may impact how much you’re able to contribute to a Roth IRA, so you’ll want to make sure this field accurately reflects the status you claim when you file your taxes.
- Retirement Age: 66. This is when people generally retire in the U.S., according to Transamerica and Aegon research.
- Rate of Return: 9%. Your rate of return always depends on your investment choices. We’ve picked this figure as it’s close to the historical long-term averages of portfolios with heavy stock components, like financial advisors might recommend. If you prefer a more conservative mix of investments, try a rate of return closer to 8%. That’s what portfolios with a 60%/40% split of stocks and bonds have averaged over the long term.
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Key Roth IRA Terms
- Individual Retirement Account. IRAs allow anyone with an earned income to save for retirement and take advantage of government tax benefits. IRAs come as either traditional or Roth accounts, depending on if you’d rather have a tax break on your savings now or in retirement. If you have a traditional IRA, use our Traditional IRA calculator instead.
- Tax-advantaged retirement accounts. This describes how certain retirement accounts get preferential tax treatment. Traditional and Roth IRAs give you options for managing taxes on your retirement investments.
- Contribution limits. Unlike taxable investment accounts, you can’t put an unlimited amount of money into a Roth IRA. Currently, you can save a maximum of $6,000 a year, or $7,000 if you’re 50 or older, in your Roth IRA. But there are a couple of limitations to keep in mind: You can’t contribute more money than you earned in a given year, and if you earn more than a certain amount, you may be restricted to a limited contribution—or none at all. If you’d like to invest more for retirement than you can in a Roth IRA, you’ll need to use a workplace plan, like a 401(k); a traditional IRA (that you may be able to turn into a backdoor Roth IRA); a normal, taxable investment account; or an annuity.
- Compound returns. Compounding is when your investment returns help you earn even greater returns in the future. That may sound a bit abstract, so here’s how it works: Say you invest $5,000 and earn a 10% annual return. Your balance will be $5,500 after the first year, an increase of $500. If you then get the same return on your savings the next year, you’d have a total of $6,050 (an increase of $550, or $50 more than your return the previous year). Over years and decades, compounding like this can turn even small contributions into large sums by netting you ever-increasing returns.
- Retirement age. From Uncle Sam’s POV, 62 is the official age when you can start receiving Social Security benefits, so many people use it as a shorthand for retirement age. It’s also important to note, though, that you can start withdrawing from your IRA penalty free at 59 ½.
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Roth IRA FAQs
Who can contribute to a Roth IRA?
Anyone who earns an income in the current tax year and meets the income restrictions below can contribute to a Roth IRA. (Even if you didn’t earn an income, you may be able to make Roth IRA contributions through a spousal IRA.)
Roth IRA Income Limits in 2023 and 2024
Can I deduct Roth IRA contributions on my taxes?
Because you are able to withdraw them tax-free in retirement, you cannot deduct Roth IRA contributions on your taxes.
Are there age limits for making contributions to a Roth IRA?
You can contribute to a Roth IRA at any age.
When can I withdraw from my Roth IRA?
You can technically withdraw contributions you make to your Roth IRA at any time. You cannot, however, touch the earnings they have made until you turn 59 ½ and have had a Roth IRA open for at least five years. If you withdraw earnings before then, you may have to pay taxes on them as well as a 10% penalty. Once you meet those criteria, you can make penalty-free withdrawals from your Roth IRA. (Note: You may be able to avoid taxes on earnings or the 10% penalty if you use an early Roth IRA withdrawal for certain purposes, like a first-time home purchase).
Do I have to make withdrawals from my Roth IRA?
No. Roth IRAs are not subject to the mandatory withdrawals called “required minimum distributions” (RMDs) that other tax-advantaged retirement accounts are. This can make them excellent tools for leaving financial legacies to the next generation.
What is a Roth conversion?
A Roth conversion is when you transform your traditional IRA or 401(k) into a Roth IRA. When you do the conversion, you’ll need to pay the same taxes you would if you were to withdraw the equivalent balance from your traditional retirement account. While it can get pricey, a Roth conversion allows you to withdraw all gains your investment makes from that point on tax free in retirement.
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