Annual contribution
The amount you will contribute to your Traditional IRA each year. This calculator assumes that you make your contribution at the beginning of each year. In 2008, the maximum annual IRA contribution is $5,000 per individual. It is important to note that this is the maximum total contributed to all of your IRA accounts. Beginning in 2009, the contribution limit will adjust annually for inflation in $500 increments.
In 2008, if you are 50 or older, you can make an additional "catch-up" contribution of $1000. In order to qualify for the "catch-up" contribution, you must turn 50 by the end of the year in which you are making the contribution.
Expected rate of return
The annual rate of return for your IRA. This calculator assumes that your return is compounded annually and your contributions are made at the beginning of each year. The actual rate of return is largely dependant on the type of investments you select. From January 1970 to December 2007, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.4% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank can pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
Current age
Your current age.
Age of retirement
Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your IRA. So if you retire at age 65, your last contribution happened when you were actually age 64.
Current tax rate
Your current marginal tax rate you expect to pay on your taxable investments.
Retirement tax rate
The marginal tax rate you expect to pay on your investments at retirement.
Adjusted gross income
What you anticipate your income to be. This is used to calculate whether you are able to deduct your annual contributions from your taxes. It is important to note that there are no income limits preventing you from contributing to a Traditional IRA. Annual income only affects your ability to make a tax deductible contribution.
Married
Check the box if you are married. This is used to determine whether you can deduct your annual contributions from your taxes.
Employer plan
Check the box if you have an employer sponsored retirement plan, such as a 401(k) or pension. This is used to determine if you can deduct your annual contributions from your taxes. For more information on how an employer plan can affect your IRA tax deduction, see the definition for non-deductible contributions, directly below.
Total non-deductible contributions
The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are normally tax-deductible. However, if you have an employer sponsored retirement plan, such as a 401(k), your tax deduction may be limited.
In 2008, for single tax filers with an employer sponsored retirement plan, an IRA contribution is fully tax-deductible if your income is below $53,000. It is then prorated between $53,000 and $63,000. If your income is over $63,000 and you have an employer sponsored retirement plan, such as a 401(k), you receive no tax deduction. For married couples, the same rules apply except the deduction is phased out between $83,000 and $103,000.
This calculator automatically determines if your tax deduction is limited by your income. However, there are two unusual situations not automatically accounted for where additional tax phase-outs are applied. First, if your spouse has an employer sponsored retirement plan but you do not, your tax deduction is phased out from $159,000 to $169,000. Second, if you are married filing separately and have an employer sponsored retirement plan, the income phase-out is from $0 to $10,000.
