Traditional IRA Calculator

A traditional IRA allows you to save money and shield your contributions and your earnings from taxes until you take withdrawals at retirement. If you qualify, you can deduct your contributions from your taxes.
 

Deferring taxes makes it easier for you to save. For example, suppose you’re in the 24 percent tax bracket and you want to save $1,000 in your regular savings account. You’ll need to earn $1,316, because you’ll owe $316 in taxes. With a traditional IRA, you only have to earn $1,000 to contribute $1,000.

As with all things tax-related, there are several provisions you must know. First, you’ll have to pay taxes on your money when you withdraw. To use the above example, if you wanted $1,000 from your traditional IRA, you’d have to pay $316 in taxes, assuming you were still in the 24 percent tax bracket. You’d be left with $684.
 

It gets worse if you make that withdrawal before you reach age 59½. In most cases, you’ll have to pay a 10 percent penalty on the amount you withdraw. Let’s say you’re in the 24 percent tax bracket and withdraw $1,000 at age 50. You’ll pay a $100 penalty in addition to $316 in taxes.
 

You must start taking withdrawals the year after you turn 73, but at that age you’ll only pay regular income taxes on the money.

The contributions you make to a Roth IRA are after-tax contributions, which means you can’t deduct them from your taxes. If you follow the withdrawal rules, however, you pay no taxes on money you take from your Roth IRA.

The rules in a nutshell:

• You must be age 59½ or older.
• You must have held your account for at least five years.

Roth IRAs have one other advantage over traditional IRAs: You can withdraw from your principal — the money you have put into the account — at any time without paying a penalty, or income tax. You can also take penalty-free (but not tax-free) early withdrawals of the earnings on those contributions if: ​

• You’re taking out up to $10,000 for the first-time purchase of a home.
• You’re using the withdrawal for qualified higher education purposes.
• You’re using the money for qualified expenses related to a birth or adoption.
• You become totally and permanently disabled or die.
• You are unemployed and using the withdrawal to pay for unreimbursed medical expenses or health insurance.​ There is also an exception for heirs, who can make penalty-free withdrawals after your death.

​The IRS sets annual contribution limits for IRAs. If you’re under age 50, you can contribute up to $7,000 a year to your traditional IRA in 2024. If you’re older than 50, you can contribute an extra $1,000, for a total of $8,000. 

There’s a catch, though, and it’s a big one. Your modified adjustable gross income (MAGI) must fall below certain limits to fully deduct your contributions. (MAGI is your adjusted gross income, as reported on your 1040 or 1040-SR tax form, plus the value of certain deductions that you may have subtracted to calculate your adjusted gross income, such as student loan interest.)

These are the income limits for deductible IRA contributions in the 2024 tax year if you or your spouse has a workplace retirement plan available:​

• Single tax filers with a MAGI up to $77,000 can make a fully tax-deductible contribution to a traditional IRA. Between $77,000 and $87,000, you get a partial deduction. At $87,000 and above, you can’t claim a deduction for your contributions.
• Married taxpayers who file a joint return must have $123,000 or less in MAGI to fully deduct contributions made by the spouse covered by a plan at work. This phases out for incomes up to $142,999; at $143,000 and up, you can’t take a deduction.​

People who don’t have a workplace retirement plan available may have no MAGI limits on their contributions. Married couples filing jointly with one spouse covered by a workplace retirement plan can deduct all of the IRA contributions made by the spouse not covered by a workplace plan if their MAGI is less than $230,000 or part of the contributions if their MAGI is less than $240,000.

Most financial institutions — banks, brokerages and insurance companies — offer IRAs. You don’t need $7,000 (or $8,000) to start one. Fidelity Investments, J.P. Morgan and Charles Schwab all offer IRAs with no minimum investment.

As with all investments, keep an eye on the fees financial institutions may charge to manage the account or the investments in an IRA. The more money you pay in fees, the less you can keep for yourself.

Of course, the more you contribute, the more you’ll have in retirement. The AARP Traditional IRA Calculator will show you how much you can earn by adding a bit more to your account each year.

Let’s say you’re single and, at 50, are just starting an IRA. You don’t want to contribute the maximum $8,000, but you can manage $1,000. When you hit 65 in 15 years, you’d have $26,888, assuming you earned an average 7 percent return. 

How could you do better? Try increasing contributions to the maximum allowable amount. Invest $8,000 a year and your nest egg will grow to $215,104 by age 65. Increase your contributions and work until 70 and you’ll have $350,921. The calculator allows you to experiment with different scenarios — higher contribution rates, higher returns, later retirement dates.