Calculate Roth IRA retirement savings and growth
A Roth IRA is an individual retirement account in the United States that allows you to save for retirement with after-tax dollars. The main advantage is that your investment grows tax-free, and qualifying withdrawals in retirement are completely tax-free.
Traditional IRA contributions are often tax-deductible in the year they are made, but you pay taxes on withdrawals in retirement. Roth IRA contributions are made with after-tax money, meaning there is no immediate tax break, but withdrawals in retirement are tax-free.
For 2024, the annual contribution limit is $7,000 for individuals under age 50. If you are age 50 or older, you qualify for a catch-up contribution of an additional $1,000, bringing your total annual limit to $8,000. Note that your contribution cannot exceed your earned income for the year.
For single filers, the MAGI phase-out range is $146,000 to $161,000. For married couples filing jointly, the range is $230,000 to $240,000. If your income falls below these ranges, you can contribute the full amount. Within these ranges, your contribution limit is reduced. If your income exceeds the range, you cannot make direct contributions.
If your income exceeds the IRS limits to contribute directly to a Roth IRA, you can make a non-deductible contribution to a Traditional IRA (which has no income limits for contributions) and then immediately convert those funds into a Roth IRA. Note that if you have other pre-tax IRAs, the IRS pro-rata rule will apply to the taxation of the conversion.
You can withdraw your original contributions at any time, for any reason, completely tax- and penalty-free. However, to withdraw investment earnings tax- and penalty-free, the withdrawal must be qualified: you must be at least age 59½ and the account must have been open for at least 5 years. Early earnings withdrawals are subject to income tax and a 10% penalty unless an exception (like first-time homebuyer up to $10,000 or qualified education expenses) applies.
The 5-year rule requires that at least five tax years must pass after your first contribution to any Roth IRA before you can withdraw earnings tax-free. The clock starts on January 1 of the tax year for which you made your first contribution, even if you made the contribution later (e.g. in April of the next year).
No. Unlike Traditional IRAs and 401(k)s, original owners of Roth IRAs are not required to take any lifetime Required Minimum Distributions (RMDs). You can leave the money in the account to compound tax-free for as long as you live, making it an excellent vehicle for wealth transfer and estate planning.
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