Roth IRA Calculator

The Roth IRA Calculator is designed to help you estimate the balances of Roth IRA savings and compare them to a regular taxable account. It’s particularly useful for U.S. residents but can also offer general insights for others. If you’re looking for calculations or additional details about other types of IRAs, check out our IRA Calculator.

A Roth IRA, or Individual Retirement Account, is a retirement savings option offering tax-free growth and tax-free income when you retire. The main distinction between Roth IRAs and traditional IRAs lies in the tax treatment. While traditional IRAs provide tax-deferred contributions, Roth IRA contributions are made with after-tax dollars. Although contributions are not tax-deductible, they can be withdrawn without tax penalties at any time. However, the earnings on those contributions may be subject to taxes and penalties if withdrawn prematurely. The Roth IRA was established by the Taxpayer Relief Act of 1997, named after Senator William Roth.
You can open a Roth IRA through various institutions, including well-known financial companies and online-only investment firms. While all of these institutions must meet certain regulatory standards set by the IRS, they can still offer unique benefits and features.

Contributions to Roth IRAs
Roth IRA contributions are made with after-tax dollars, meaning they are not tax-deductible. However, you may qualify for the Saver’s Tax Credit, which can offer up to a 50% tax credit on the first $2,000 of your contributions, depending on your income. Importantly, you can withdraw your contributions at any time without penalties or taxes, but the same does not apply to your earnings. Early withdrawals of earnings (before age 59½ or before five years of account ownership) could trigger taxes and penalties, with some exceptions. For instance, if you use the funds for a first-time home purchase (up to $10,000), education expenses, or to pay for medical costs or health insurance while unemployed, you may avoid the penalty.

Income limits apply to Roth IRA eligibility. For the 2025 tax year, if your adjusted gross income (AGI) exceeds $165,000 for individuals or $246,000 for married couples filing jointly, you won’t be able to contribute directly to a Roth IRA. Contributions are capped at $7,000 for those under age 50, and $8,000 for those 50 and older. Contributions for the 2025 tax year can be made until the filing deadline in April 2026.

Roth IRA Distributions
Withdrawals from Roth IRA contributions are always tax- and penalty-free. Earnings, however, are only eligible for penalty-free and tax-free withdrawals after the account has been open for at least five years and the account holder is at least 59½ years old. If the account is younger than five years, earnings may be subject to both tax and penalties unless one of the following conditions is met:

• The account holder is at least 59½.

• The account holder becomes disabled.

• The funds are used for a first-time home purchase (up to a $10,000 lifetime maximum).

• The funds are used for qualified education expenses.

• The beneficiary inherits the funds after the account holder’s death.

• The funds are used to pay unreimbursed medical expenses or health insurance while unemployed.

Roth IRAs do not require Required Minimum Distributions (RMDs), unlike traditional IRAs or 401(k)s, which is a unique benefit.

Advantages of a Roth IRA

1. Free Withdrawals on Contributions: Unlike traditional retirement accounts, Roth IRA contributions can be accessed at any time without penalties or taxes. This flexibility can provide a financial safety net in emergencies.

2. Liquidity: You can use your Roth IRA for emergency funds because you can withdraw your contributions without penalty or tax. However, keep in mind that once you withdraw contributions, you cannot re-contribute them within the same tax year.

3. Tax-Free Retirement Income: Since you already paid taxes on your contributions, withdrawals during retirement are tax-free. This is a significant advantage, especially if tax rates increase in the future.

4. Variety of Investment Options: Roth IRAs are available from various financial institutions, offering a wide range of investment options. These are typically only limited by the offerings of the institution holding your account.

5. Not Reported on FAFSA: If you’re a parent with college-bound children, the value of a Roth IRA is not considered an asset when filling out the Free Application for Federal Student Aid (FAFSA). This can help your child qualify for more financial aid.

6. Heir-Friendly: Roth IRAs are beneficial for estate planning. Since the contributions are already taxed, heirs do not have to pay taxes on the funds they inherit. Additionally, surviving spouses are not required to take distributions immediately.

7. Tax Diversification in Retirement: Roth IRAs allow for strategic tax planning in retirement. You can use them to avoid pushing yourself into a higher tax bracket by withdrawing from taxable income sources (such as a 401(k) or traditional IRA).

Disadvantages of a Roth IRA

1. Taxes Paid Upfront: Contributions to a Roth IRA are made with after-tax dollars, which means no immediate tax break like you would get with a traditional IRA.

2. Low Contribution Limit: The annual contribution limit for 2025 is $7,000 for individuals under 50 and $8,000 for those 50 and older. This is significantly lower than the contribution limits for 401(k) plans, which are $23,500 in 2025.

3. Income Limits: High-income earners are restricted from contributing directly to a Roth IRA. In 2025, individuals with an AGI over $165,000 or married couples with an AGI over $246,000 cannot contribute directly. However, there are alternative ways to contribute, such as using a traditional IRA and converting to a Roth IRA.

4. Does Not Reduce Taxable Income: Since contributions are made with after-tax dollars, you do not receive a tax reduction in the year of contribution. However, the Saver’s Tax Credit may offer some relief for low- and middle-income earners.

5. Five-Year Holding Period: To make tax-free withdrawals of earnings, you must hold the account for at least five years. This is a consideration for those starting a Roth IRA later in life or close to retirement.

6. Not Ideal for Charitable Donations: If you plan to leave funds to charity, a Roth IRA may not be the best choice. Charities, being tax-exempt, will not benefit as much from Roth IRA assets as they would from tax-deferred accounts like traditional IRAs or 401(k)s.

Converting Traditional IRAs to Roth IRAs
If you cannot directly contribute to a Roth IRA due to income limits, you can convert funds from a traditional IRA to a Roth IRA. There are no income limits for conversions, but you will need to pay taxes on the converted amount.

When converting a traditional IRA to a Roth IRA, you can transfer funds in one of three ways:

1. Same Trustees: Transfer funds within the same financial institution.

2. Different Trustees: Transfer to a different institution, with the receiving institution handling the details.

3. 60-Day Rollover: Transfer funds within 60 days to avoid taxes and penalties, though this is the riskiest method as failure to meet the deadline will result in a tax penalty.

Before converting a traditional IRA to a Roth IRA, ensure you have enough non-IRA funds to pay the taxes, as using IRA funds to pay taxes would reduce your future tax-free growth. Additionally, remember that converting may not be beneficial for everyone—especially those nearing retirement—due to the taxes owed upfront.

Roth IRA conversions can be a powerful strategy if you anticipate higher taxes in the future, but careful consideration of the tax implications and your retirement timeline is crucial.