How to Use the Roth IRA Tax Savings Calculator
A Roth IRA is one of the most powerful tax-advantaged accounts available to US investors. Unlike a taxable brokerage account, all investment growth inside a Roth IRA is completely tax-free. This calculator quantifies exactly how much tax you avoid by using a Roth IRA versus a regular taxable account.
How Roth IRA Works
You contribute after-tax dollars to a Roth IRA. The money grows tax-free, and qualified withdrawals in retirement (age 59½ or older, account open 5+ years) are completely tax-free. The 2024 contribution limit is $7,000/year ($8,000 if age 50+). Income limits apply.
Roth IRA vs. Traditional IRA
Traditional IRA contributions may be tax-deductible (reducing taxes now), but withdrawals in retirement are taxed as ordinary income. Roth IRA contributions are not deductible, but all withdrawals are tax-free. If you expect to be in a higher tax bracket in retirement, Roth is generally better.
Roth IRA vs. Taxable Account
In a taxable brokerage account, you pay capital gains tax when you sell holdings at a profit. You also owe taxes on dividends each year. In a Roth IRA, all of this is shielded. The longer your investment horizon, the larger the Roth advantage — compound growth on money you would have paid in taxes is enormous over decades.
Frequently Asked Questions
High earners can use the "backdoor Roth IRA" strategy: contribute to a non-deductible traditional IRA, then immediately convert it to a Roth IRA. This effectively bypasses the income limits. Consult a tax advisor for your situation.
Yes. Your contributions (not earnings) can be withdrawn at any time tax-free and penalty-free. Only the earnings portion has age and holding-period requirements for tax-free withdrawal.