IRA Retirement Calculator – Forbes Advisor

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Do you contribute to a traditional Individual Retirement Account (IRA)? If the answer is yes, congratulations, you’ve taken a big step toward building a financially secure retirement. Use our traditional IRA calculator to see how much your nest egg will grow by the time you reach retirement.

IRA Calculator Details

To get the most out of this calculator, you should use data that reflects your current financial situation. If you don’t have this information, here are the default assumptions we use:

  • Retirement age: 66. People typically retire at this age in the United States, according to research from Transamerica and Aegon.
  • Return rate: 9%. The returns you can expect from your IRA depend on your investment choices. We have chosen a default average return of 9% to reflect the long-term historical averages of portfolios with majority equity allocations. If you are nearing retirement or prefer a more conservative allocation, we suggest changing the rate of return to 8%, the long-term historical annual average of portfolios with a 60/40 mix of stocks and obligations.

What is an IRA?

An IRA is a tax-efficient account that allows people with income to save money for retirement. You can open an IRA with an online brokerage, investment firm, or robo-advisor.

There are a variety of different IRA accounts, but the three main types each have different benefits:

  • Traditional IRA. Contributions are made before you pay income tax, and some savers can even deduct contributions on their tax return. Earnings grow tax-deferred until you withdraw them in retirement. Many retirees are in a lower tax bracket, so traditional IRA withdrawals may be taxed at a lower rate.
  • Roth IRA. Contributions are deducted from income already taxed. Your balance grows tax-free and retirement withdrawals are not taxed.
  • Rollover IRA. Contributions are “carried over” from a workplace retirement plan such as a 401(k) or 403(b). Investors can choose either a Roth IRA or a traditional IRA for their rollover contributions.

How does a traditional IRA work?

Anyone can save for retirement and enjoy the tax benefits of a traditional IRA. Here are some other IRA concepts you should know.

Tax-advantaged retirement account

People use this term a lot when talking about IRAs. Tax-advantaged accounts offer special tax benefits when saving for retirement. This can help you grow your wealth faster than investing in a taxable investment account, which requires you to pay taxes on any income you receive or investment gains you receive.

Traditional and Roth IRAs allow you to avoid taxes as long as you hold the money in your account. Because you got tax relief when you contributed, traditional IRA money may be subject to taxes when you withdraw it.

IRA contribution limits

Unfortunately, there are limits to how much you can save in an IRA. In 2022, you can save $6,000 a year in an IRA, or $7,000 if you’re 50 or older. In 2023, these limits increase to $6,500 and $7,500 respectively.

In particular, you cannot contribute more than your taxable earned income for the year. So if you only made $3,000, that would be your IRA contribution limit for the year. If you want to invest even more for your retirement, use a business plan like a 401(k), a taxable investment account, or an annuity.

Compound returns

Compounding is when your investment returns earn you even more over time. Here’s how it works: when you invest $500 and get a 10% annual return, your balance will grow by $50 to $550 after the first year. Then the next year, assuming you earn the same rate of return, your balance grows to $605, a gain of $55. Imagine that little extra that stretches over years or decades – that’s how funding can help you build up a comfortable retirement nest egg, even with small contributions.

retirement age

You can retire whenever you want, of course, but the government has some thoughts on when you should consider hanging up your spurs. From the government’s perspective, 62 is the official age at which you can start claiming Social Security benefits.

It should also be noted that 59 ½ is when you can start withdrawing from your IRA penalty for free.

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Traditional IRA FAQs

Who can contribute to a traditional IRA?

Anyone who earns income in the current tax year can contribute to a traditional IRA. If you haven’t earned any income, you may be able to contribute through a spousal IRA.

How much can I contribute to an IRA?

Currently, you can save $6,000 a year, or $7,000 if you’re 50 or older. In particular, you cannot contribute more than your taxable earned income for the year.

Can I deduct traditional IRA contributions on my taxes?

If you don’t have access to a retirement plan, such as a 401(k), at work, you can deduct all of your contributions from your taxable income at tax time. If you’re covered by a plan at work (even if you don’t participate in it), your ability to deduct your traditional IRA contributions may be limited or prohibited altogether.

See the table below to determine how your traditional IRA contributions may be affected by income limits. And if you have questions about your ability to deduct traditional IRA contributions from your taxes, please speak to a tax professional.

Are there age limits for contributing to an IRA?

Starting in 2020, you can contribute to a traditional IRA regardless of your age.

When can I withdraw money from my IRA?

Starting at age 59.5, you can make penalty-free withdrawals from your traditional IRA. However, you will still have to pay taxes based on your current tax bracket. If you make withdrawals before 59 ½, you may owe a 10% penalty in addition to any tax you owe, with some exceptions, such as medical or financial hardship.

Should I make withdrawals from my IRA?

If you have enough money in other accounts to cover your expenses, you don’t have to draw money from your traditional IRA until age 72. This is when you must begin mandatory withdrawals of a percentage of your traditional IRA balance called “required.” Minimum Distributions,” or RMD.

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