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Traditional IRA Calculator

Traditional IRA Calculator

Contributing to a traditional IRA can create a current tax deduction, plus it provides for tax-deferred growth. While long term savings in a Roth IRA may produce better after-tax returns, a traditional IRA may be an excellent alternative if you qualify for the tax deduction.

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Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

The traditional U.S. retirement plan is a three-legged stool: Social Securitypensions and your own savings.

Many public jobs still have pensions. But relatively few companies offer pensions anymore, and Social Security, on average, replaces only about 40 percent of your working income, so your savings likely will bear much of the weight. The AARP Traditional Individual Retirement Account (IRA) Calculator will show you how much you can save in a traditional IRA over time, and how you can improve your current savings rate.

What is a traditional IRA?

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.

What’s the difference between a traditional IRA and a Roth IRA?

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.

How much can I contribute to a traditional IRA?

​The IRS sets annual contribution limits for IRAs. If you’re under age 50, you can contribute up to $6,500 a year to your traditional IRA in 2023. If you’re older than 50, you can contribute an extra $1,000, for a total of $7,500. (Those caps go up to $7,000 and $8,000, respectively, in 2024.)

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, minus certain deductions, such as student loan interest.)

In the 2023 tax year: 

  • Single tax filers with a MAGI up to $73,000 can make a fully tax-deductible contribution to a traditional IRA. Between $73,000 and $82,999, you get a partial deduction. At $83,000 and above, you can’t contribute.
  • Married taxpayers who file a joint return must have $116,000 or less in MAGI. The deduction phases out for incomes up to $135,999; at $136,000 and up, you can’t make a deduction.

Where can I open a traditional IRA?

Most financial institutions — banks, brokerages and insurance companies — offer IRAs. You don’t need $6,500 (or $7,500) 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 $7,500, 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 $7,500 a year and your nest egg will grow to $201,660 by age 65. Increase your contributions and work until 70 and you’ll have $328,989. The calculator allows you to experiment with different scenarios — higher contribution rates, higher returns, later retirement dates.