IRA Calculator

An individual retirement account (IRA) is a tax-advantaged account that anyone with earned income can open at a bank, brokerage or robo-adviser, independent of an employer. The calculator compares the same before-tax savings in three places. In a traditional IRA, the full amount goes in and grows untaxed, and tax is paid at withdrawal. In a Roth IRA, tax is paid first, so less goes in, but everything comes out tax-free. In a regular taxable account, tax is paid first and again on the growth every year.

With the defaults, $30,000 plus $7,500 a year at 6% for 35 years grows to $1,066,343 in a traditional IRA, or $906,392 after a 15% tax at withdrawal. The Roth IRA ends at $799,758, exactly 75% of the traditional balance, because a 25% tax was paid at the start. The taxable account trails at about $563,434 because yearly taxes slow compounding. Here the traditional IRA wins because the tax rate in retirement is lower than today's; if the rates were equal, the traditional and Roth results would be identical.

Traditional IRA

Contributions to a traditional IRA may be tax-deductible, and earnings grow tax-deferred. Withdrawals are taxed as ordinary income and, before age 59½, usually face a 10% additional tax unless an exception applies, such as first-time home purchase (up to $10,000), qualified higher education expenses or disability. Anyone with earned income can contribute regardless of income, but the deduction phases out for those covered by a workplace plan: for 2026, between $81,000 and $91,000 of modified AGI for single filers and $129,000 to $149,000 for joint filers. Required minimum distributions start at 73 or 75.

Roth IRA

Roth IRA contributions are made with after-tax dollars and are never deductible, but qualified withdrawals of contributions and earnings after 59½, once the account is five years old, are tax-free. Contributions can be taken out at any time without tax or penalty. Eligibility to contribute directly phases out between $153,000 and $168,000 of modified AGI for single filers and $242,000 to $252,000 for joint filers in 2026. There are no required distributions during the owner's lifetime.

SEP IRA

A Simplified Employee Pension IRA lets self-employed people and small business owners make employer contributions for themselves and their employees. Contributions are tax-deductible for the business and can be up to 25% of each employee's compensation, to a maximum of $72,000 for 2026. The employer must contribute the same percentage of pay for every eligible employee, and contributions are fully vested immediately. SEP IRAs are easy to set up with little paperwork and no annual filing, and contributions can vary from year to year, including skipping a lean year. Withdrawals follow traditional IRA rules.

SIMPLE IRA

A Savings Incentive Match Plan for Employees IRA is designed for businesses with 100 or fewer employees that do not offer another retirement plan. Employees can defer part of their salary, up to $17,000 in 2026, with a $4,000 catch-up at 50 or older and a larger catch-up at ages 60 to 63; some smaller employers may allow higher limits under SECURE 2.0. The employer must either match employee deferrals dollar for dollar up to 3% of pay or make a 2% non-elective contribution for all eligible employees.

SIMPLE IRAs are cheaper to run than a 401(k) and have no annual filing requirement, but limits are lower. Withdrawals within the first two years of participation are subject to a 25% additional tax instead of the usual 10%, and money generally cannot be rolled into another type of account until two years have passed. After that, withdrawals and RMDs follow traditional IRA rules. Employers may also offer a Roth version of the SIMPLE IRA since SECURE 2.0.

IRA Rollovers

A rollover moves retirement money from one account to another without tax. The most common is from an old employer's 401(k) into an IRA when changing jobs or retiring, which typically widens investment choices and consolidates accounts. In a direct rollover or trustee-to-trustee transfer, the money moves straight between institutions, and nothing is withheld.

In an indirect rollover, the plan pays you, withholding 20% for federal tax on an employer plan distribution, and you have 60 days to deposit the full amount, including the withheld part from your own pocket, into the new account. Anything not redeposited in time is taxed as a distribution and may be penalized. You can make only one indirect IRA-to-IRA rollover in any 12-month period, though direct transfers are unlimited.

Pre-tax money should go into a traditional IRA and Roth money into a Roth IRA. Moving pre-tax money into a Roth is a conversion, which is taxable. Before rolling a 401(k) out, compare fees and features: some plans offer institutional funds that are cheaper than retail alternatives, plan assets have strong creditor protection, and the rule of 55 allows penalty-free withdrawals only from the plan of the employer you left.

Comparison to 401(k)s

IRAs and 401(k)s share the same basic tax treatment, traditional or Roth, but differ in who runs them, how much you can put in and what you can invest in.

• Access: an IRA is opened by the individual with any provider; a 401(k) is available only through an employer that sponsors one.
• Limits: for 2026, $7,500 a year for an IRA ($8,600 at 50+) versus $24,500 in employee deferrals for a 401(k), plus catch-ups and employer contributions.
• Employer match: only workplace plans offer matching contributions.
• Investments: an IRA can hold almost any stock, bond, ETF or fund; a 401(k) is limited to the plan's menu.
• Income limits: Roth IRA contributions and traditional IRA deductions phase out at higher incomes; 401(k) contributions do not.
• Loans and early access: many 401(k)s allow loans and penalty-free withdrawals after leaving a job at 55; IRAs do not allow loans, but offer penalty exceptions for a first home and college costs.
• Creditor protection: 401(k)s have unlimited federal protection under ERISA; IRAs are protected in bankruptcy up to an inflation-adjusted cap of over $1.5 million and vary under state law otherwise.

A common order of priorities is to contribute to the 401(k) up to the full employer match, then fund an IRA for its wider and often cheaper investment choices, then return to the 401(k) up to the limit. Both accounts can be used in the same year, though a workplace plan may limit the deductibility of traditional IRA contributions.

Investments Options in an IRA

An IRA is a container, not an investment. Once the account is open, you choose what goes inside it, and that choice drives most of the long-term result. Brokerage IRAs allow almost any publicly traded security.

• Stocks: individual company shares offer growth and sometimes dividends but carry company-specific risk. Holding many companies reduces that risk.
• Bonds: Treasury, municipal and corporate bonds pay interest and are generally steadier than stocks. Since IRA growth is already tax-sheltered, tax-exempt municipal bonds usually make less sense inside one.
• Mutual funds: pooled portfolios of stocks, bonds or both, run by professional managers or tracking an index. Watch the expense ratio and any sales loads.
• Exchange-traded funds (ETFs): index-based funds that trade like stocks, usually with very low costs. Broad-market stock and bond ETFs are a popular core holding.
• Target-date funds: a single fund that holds a diversified mix and grows more conservative as the target retirement year approaches.
• CDs and money market funds: low-risk places to hold cash inside an IRA, useful as retirement nears or for money waiting to be invested.
• Real estate investment trusts (REITs): companies that own income-producing property and pay out most of their income as dividends, which makes them tax-efficient inside an IRA.
• Annuities: insurance products that can be held in an IRA, though their tax deferral is redundant inside an account that is already tax-deferred.

Some things are off-limits in any IRA: life insurance, collectibles such as art, antiques, gems and most coins (certain gold, silver and platinum bullion and coins are allowed if held by a trustee), and transactions that benefit you or close family members directly. Because traditional IRA growth will eventually be taxed as income and Roth growth never will, many investors hold their highest-growth assets in a Roth and more stable assets in a traditional IRA.

Self-Directed IRA

A self-directed IRA (SDIRA) is held by a custodian that permits alternative investments that ordinary brokerages do not offer, such as rental real estate, raw land, private company shares, private loans, precious metals, tax liens and cryptocurrency held directly. The tax rules are the same as for any traditional or Roth IRA.

The extra freedom comes with extra rules and risks. The IRA, not you, must own the asset, and all income and expenses must flow through the account. Prohibited transactions, such as living in or vacationing at an IRA-owned property, doing repair work on it yourself, lending IRA money to a family member or using the IRA as collateral, can disqualify the entire account and make it fully taxable. Some investments, especially leveraged real estate and active businesses, can trigger unrelated business income tax inside the IRA.

Custodian and administration fees are usually higher than at a brokerage, valuations of illiquid assets must be reported each year, and RMDs can be hard to take from assets that cannot easily be sold. Self-directed IRAs have also been used in fraud schemes; the SEC and state regulators warn investors to verify any promoter and investment independently.

Frequently asked questions

Sources

• IRS – Individual Retirement Arrangements (IRAs)
• IRS – Retirement plans for self-employed people
• Investor.gov – U.S. Securities and Exchange Commission