IRA Calculator

This calculator runs the same money three ways: into a traditional IRA, into a Roth IRA, and into an ordinary taxable account. It applies your current tax rate to the contributions that are not deductible, applies your expected retirement rate to the withdrawals that are taxable, and shows what you are left with at retirement in each case. The gap between the three is what the tax shelter is worth.

What an IRA is

An individual retirement account is a retirement plan with tax advantages set out in IRS Publication 590. It exists because the government would rather people saved for their own retirement than arrived at it with nothing, so it pays them to do it in the form of a tax break.

Two types dominate. A traditional IRA takes money before tax and taxes it on the way out. A Roth IRA takes money you have already paid tax on and never taxes it again. Two more exist for the self-employed and small firms: SEP IRAs suit contractors and businesses with a handful of staff, and SIMPLE IRAs are built for companies under 100 employees. All four beat an ordinary taxable account, because in a taxable account the growth is taxed every year along the way.

Traditional IRA

The most widely held type. Contributions are deductible for most people, subject to your filing status, your income, and whether you or a spouse are covered by a workplace plan, so the deduction shrinks and eventually disappears at higher incomes. Nothing is taxed while the money grows.

Tax lands when you take the money out. Withdrawals after 59½ are penalty-free and taxed as ordinary income. Take money out earlier and you generally owe a 10% penalty on top of the tax, with a list of exceptions covered below. From age 73 the required minimum distribution rules kick in and you have to start withdrawing whether you need the money or not, a threshold that rises to 75 in 2033 under SECURE 2.0. Almost everyone with earned income is eligible to contribute.

Roth IRA

A Roth is usually opened and run by the individual rather than an employer, funded with after-tax money. Growth is untaxed and qualified withdrawals are untaxed, so the balance you see is the balance you keep. Withdrawals are penalty-free from 59½, provided the account has also been open five years.

The feature that sets it apart is what is missing: no required minimum distributions during the owner's lifetime. A Roth can keep compounding untouched for as long as you live, which makes it the natural home for money you hope never to need. Contributions, as opposed to earnings, can also be withdrawn at any time without tax or penalty, since you already paid the tax on them. The Roth IRA Calculator models one on its own.

SEP IRA

A Simplified Employee Pension is funded by the employer, who pays into accounts held by employees, and it is deliberately easier to administer than other plans. Tax treatment, growth, and distributions work like a traditional IRA, and the employer deducts the contributions as a business expense.

The limits are on a different scale. For 2026 the cap is the lesser of 25% of compensation or $72,000, roughly ten times what a traditional or Roth IRA allows, which is why it appeals to self-employed people with high income. Everything is fully vested the moment it lands, there is no catch-up contribution for people over 50, and every qualifying employee has to receive the same percentage of pay. That last rule is what makes a SEP expensive once a business has staff.

SIMPLE IRA

A Savings Incentive Match Plan for Employees is aimed at businesses with 100 or fewer employees, and it costs far less to run than a 401(k). Contributions are deductible for the employer, who must pick one of two formulas: match employee contributions up to 3% of pay, or contribute a flat 2% of pay for every eligible employee whether or not they put anything in themselves.

For 2026, employees may contribute up to $17,000, with an extra $4,000 from age 50 and $5,250 for ages 60 to 63, or 100% of compensation if that is lower. If you also pay into another employer plan, the combined total across all of them is capped at $24,500 under 50, $32,500 for ages 50 to 59 or 64 and over, and $35,750 for ages 60 to 63.

One rule catches people out. The early withdrawal penalty on a SIMPLE IRA is 25%, not the usual 10%, during the first two years of participation. After two years it drops to the standard 10%.

Rolling money over

Existing plans can be consolidated into a traditional IRA: 401(k)s, 403(b)s, 457s, SIMPLE and SEP IRAs, and inherited employer plans for designated beneficiaries. A direct rollover moves the money without triggering tax, though it still has to be reported. Two forms are involved: a 1099-R for the distribution from the old plan and a 5498 for the contribution into the IRA. Traditional and Roth money must stay in separate accounts, but rollover money and ordinary contributions can share one.

Ask for a direct trustee-to-trustee transfer rather than a cheque. With an indirect rollover the plan withholds 20% and you have 60 days to redeposit the full original amount, including the withheld portion out of your own pocket, or the shortfall counts as a taxable distribution. You are also limited to one indirect IRA-to-IRA rollover in any 12-month period; direct transfers are unlimited.

Rolling over is not the only choice. You can leave the money in a former employer's plan, subject to any minimum balance, move it into a new employer's plan, or cash it out, which usually means income tax plus a 10% penalty. Keeping it in an old 401(k) makes sense if that plan has unusually cheap institutional funds; moving it to an IRA makes sense if it does not.

How IRAs compare with a 401(k)

Traditional IRAs and 401(k)s do the same job: pre-tax money in, sheltered growth, taxable withdrawals in retirement when your rate is usually lower. You can pay into both in the same year. For 2026 that is $24,500 into a 401(k) and $7,500 into a traditional IRA, or $8,600 from age 50, with the IRA deduction phasing out at higher incomes.

The differences matter. A 401(k) comes only through an employer, has a much higher limit, and often carries a company match, which is the single best reason to use one first. Contributing at least enough to collect the full match should come before anything else, because nothing else returns 50% or 100% on day one. Against that, a 401(k) usually offers a short menu of funds and can carry meaningful plan fees, while an IRA opened at any brokerage gives you the whole market to choose from. A common sequence is: contribute to the 401(k) up to the match, then fill an IRA, then go back to the 401(k) for anything more.

SEP and SIMPLE IRAs do include employer contributions, unlike a traditional IRA, because they exist for firms too small to justify running a 401(k). Our 401(k) Calculator handles the match directly.

What you can hold inside an IRA

• Individual stocks: picking holdings yourself can produce higher returns and can just as easily destroy them. It takes real attention and is a poor starting point for beginners.
• Mutual and index funds: the usual choice. A mutual fund pools money from many investors and a manager invests it; an index fund simply tracks a benchmark such as the S&P 500 or the Dow Jones Industrial Average rather than following a manager's judgement. Both are hands-off and suited to long holding periods. Watch the expense ratio, which ranges from under 0.1% to above 5% and comes straight out of your return every year.
• Robo-advisors: automated services that build and rebalance a diversified portfolio for a low fee, set up in minutes and adjusted periodically.
• Other assets: precious metals, annuities, real estate investment trusts, and certificates of deposit can all sit inside an IRA.

Self-directed IRAs

A self-directed IRA replaces a traditional or Roth IRA, though not a SEP or SIMPLE, and follows the same rules on eligibility, contributions, and distributions. The difference is what it can hold. Roughly 2% of IRAs are self-directed, and the owner has to find the assets themselves.

They exist for people who want to hold things a normal brokerage will not custody: private companies, hedge funds, investment property, limited partnerships, crowdfunding stakes, tax liens, or digital currencies. Accounts are found at specialist custodians rather than mainstream firms, and the IRS watches them closely, largely because the prohibited-transaction rules are easy to trip over. You cannot buy an asset from yourself or a close family member, cannot use the property personally, and cannot do work on it yourself. Breaking those rules can disqualify the entire account in one go. These accounts suit experienced investors or people working with a professional, not casual ones.

Some assets are barred from every IRA, self-directed or not: life insurance, S-corporation stock, antiques and collectibles, art, real estate you live in or use yourself, and certain derivative positions.

Rules worth knowing before you contribute

• The deadline is generous. You can contribute for a tax year up to that year's filing deadline in April, so there is a window after the year ends.
• A non-working spouse can still contribute. A spousal IRA lets a couple filing jointly fund an account for the partner with little or no earned income, as long as combined earnings cover both.
• High earners can still reach a Roth. Contributing to a non-deductible traditional IRA and converting it is commonly called a backdoor Roth. The catch is the pro-rata rule: if you hold other pre-tax IRA money, the conversion is taxed proportionally across all of it rather than across the new contribution alone.
• The 10% early penalty has exceptions. Among them: up to $10,000 toward a first home, qualified higher education costs, up to $5,000 for a birth or adoption, total and permanent disability, certain medical expenses, and substantially equal periodic payments.
• Roth conversions are always allowed. Moving traditional money to a Roth means paying the tax now for tax-free growth later, which can be worth doing in a low-income year.

Reading the comparison

The calculator contributes the same pre-tax amount in every scenario, which is the only fair way to compare them. The traditional IRA receives the full figure because it is deductible. The Roth and the taxable account receive that figure reduced by your current tax rate, since you would have paid tax before investing.

That set-up explains the result. On the defaults, a 25% rate now and 15% in retirement, the traditional IRA finishes ahead after tax, because you avoid tax at the higher rate and pay it at the lower one. Set both rates equal and the traditional and Roth land in almost exactly the same place, which is the mathematical identity underneath the whole debate. Expect a higher rate in retirement, and the Roth wins.

The taxable account trails both by a wide margin, and the reason is not the contribution: it is that its growth is taxed every single year, so the compounding runs on a smaller base each time. That gap is the tax shelter, and it widens the longer the money stays invested. See the Investment Calculator for the untaxed version of the same growth, and the Retirement Calculator to fit this into a full plan.