This calculator that will help you to compare the estimated consequences of keeping your Traditional IRA as is, versus converting your Traditional IRA to a Roth IRA.
Assumptions: This calculator assumes you will keep your Roth IRA for at least 5-years and you won't withdraw any funds until age 59-1/2. The calculator also assumes your return on investment remains constant and that you will remain in the indicated federal tax bracket for each period (conversion may or may not push you into a higher tax bracket for the year of conversion). Finally, the calculator does not account for any state taxes or AMT (Alternative Minimum Tax). All results are hypothetical, so be sure to consult a qualified tax professional before making any decisions regarding your existing IRA.
Roth IRA Strategies
Retirement planning uses a variety of resources to ensure your spending needs are met after leaving the workplace. Individual efforts include real estate investments, individual retirement accounts and other ventures designed to grow your money while you're working; so it's there for you once you step down from your job.
Various retirement strategies dial-in to each investor's needs, taking advantage of the options yielding the greatest returns. Age, for example, guides investment decisions, because it relates to when your retirement package will be needed. Young investors have more time to accumulate retirement funding than those closer to the ends of their working years, so their approaches may include riskier, more aggressive investment products. Those approaching retirement, on the other hand, have less time to accumulate funds and correct poor investments. As a result, bonds and other conservative instruments are commonly utilized by investors nearing retirement age.
Retirement Investment Options
Several common investment products attract the majority of the money contributed toward individual investment savings. Determining how much savings you'll require is the first step toward accumulating the assets you'll need to maintain the lifestyle to which you are accustomed. Retirement calculators harness a variety of inputs, leading to informed conclusions about how much you need in your nest egg, and the best ways for reaching targeted sums.
Such calculators help identify retirement savings thresholds based on age, tax-bracket, and other concerns. When and where you'll retire are important considerations, carrying tax implications and other impacts on exactly how much you'll be able to withdraw during retirement. Using 401K accounts, individual retirement accounts, and Roth IRAs, workers set the stage for trouble-free retirement.
401K accounts are employer sponsored investment vehicles, rising in favor over the course of recent decades as viable alternatives to traditional pensions. Most accounts include employer matches, which give additional funding beyond individual contributions. Combined with tax-free contributions made directly by workers, the employee matches help accounts grow faster – with one important caveat. Like pensions, 401K account must be fully vested before money can be withdrawn. In other words, employees participating in company sponsored 401K plans are required to stay employed with the company for a pre-designated period of time (commonly 5 years) before they are eligible to tap employer contributions.
Two types of individual retirement accounts serve workers in slightly different ways. Traditional IRAs divert a portion of earnings into investment accounts, before taxes are taken out. As a result, investors get more bang for their buck initially, and the money is taxed later in life, when they might be in lower tax brackets. Roth IRAs, on the other hand, are funded with money that has already been taxed, so it will never be subject to further tax obligations. The real benefit though, is that whatever your investment earns in a Roth account also remains tax-free.
Roth IRA conversion calculator compares scenarios to help identify which type of IRA suits your circumstances. In some case, traditional IRA holders benefit from rolling monies into Roth IRAs, where they will grow tax-free. Penalties and tax consequences cancel the benefits of rolling over in some cases, so each must be evaluated closely, using the Roth conversion calculator.