September 25th 2024.
Are you trying to figure out which retirement plan will give you the most income? Look no further! The Roth Calculator is here to help. It compares the potential retirement income from a Roth IRA or 401k with that of a traditional IRA or 401k. It's important to note that most people tend to have a better outcome with a traditional IRA or 401k. However, it's always a good idea to "run the numbers" and see for yourself.
Using the calculator is easy. Simply click on the Calculate button to see example calculations using the default inputs. But to get personalized insights for your own "Roth or not" decision, make sure to replace the default inputs with your own. Detailed instructions and additional information can be found below the calculator.
The table below shows the inputs needed for the Roth Calculator. You'll need to enter your contribution amount, the number of years you plan to save and spend during retirement, the expected rate of return, and the inflation rate. Additionally, you'll need to enter your tax rates for both your saving and spending years, as well as the tax rate for qualified dividends and the yield on those dividends.
To understand the results of the simple strategy, it's important to know that it compares two scenarios. In the first scenario, you contribute your pre-tax income to a traditional IRA or 401k. In the second scenario, you first pay taxes on your income and then contribute the remaining amount to a Roth IRA or Roth 401k. The calculator then shows the difference in the future value of these two scenarios.
Of course, the default inputs are just examples and it's best to use your own personalized inputs for accurate results. The default tax rates of 22% and 11% are based on the tax brackets for single filers with a taxable income between $47,000 and $100,000, and married couples with a taxable income between $94,000 and $200,000 in 2024. The default qualified dividend tax rate of 11% is based on a hypothetical situation where someone has a $500,000 IRA and receives typical Social Security benefits.
The Roth Calculator also allows you to explore a hybrid strategy, where you contribute the same amount to both a traditional and a Roth account. In addition, you save the extra tax savings from the traditional account in a tax-efficient stock index fund. This strategy assumes that you pay qualified dividend tax rates on the dividends during your saving years. However, you can enter your own qualified dividend tax rate and yield to see how it affects the results.
It's worth noting that the hybrid strategy formulas are conservative and you may end up paying less tax in reality. For more information on the benefits of a Roth IRA or 401k, check out the old blog post "Are Roth-IRAs and Roth-401s Really a Good Deal?" And for the most up-to-date contribution limits for IRAs and Roth IRAs, refer to the IRS's "Retirement Topics - IRA Contributions Limits" webpage. Use the Roth Calculator to make an informed decision about your retirement plan and secure a financially stable future for yourself.
[This article has been trending online recently and has been generated with AI. Your feed is customized.]
[Generative AI is experimental.]
