Traditional IRA Calculator

Contributions to a Traditional IRA may be deductible in the year you make them, which lowers your current taxable income. The money then grows tax-deferred, meaning you pay no tax on dividends, interest or gains along the way. Tax is due only when you withdraw in retirement, and at that point the entire withdrawal, both contributions and earnings, is taxed as ordinary income.

The pre-tax balance is the gross value sitting in the account at retirement. Because a Traditional IRA defers tax rather than eliminating it, the after-tax figure applies your expected retirement tax rate to the whole balance to show roughly what you would keep if you withdrew it all. The real spendable value lies between the two, since most people withdraw gradually over many years.

If your contributions are deductible, each dollar you put in reduces your taxable income, so you owe less tax this year. The up-front savings estimate multiplies your total contributions by your current marginal tax rate. It is a rough figure that assumes a steady rate and full deductibility, which phases out at higher incomes when you also have a workplace plan.

It largely comes down to whether your tax rate is higher now or expected to be higher in retirement. A Traditional IRA favors people who expect a lower rate later, since you deduct at today's rate and pay tax at a lower future rate. A Roth IRA favors those who expect a higher future rate, because you pay tax now and withdraw tax-free. Many savers hold both to hedge their bets.