|
|
Traditional vs. Roth IRA Chart | These charts illustrate after-tax values and accumulation by year, based on the supplied data and the assumptions that follow.
Given your current and projected federal income tax rates, consider making deductible contributions to a traditional IRA, and investing the resulting tax savings.
|  |
 | By the time you reach retirement age, you would have accumulated $219,636 in a Roth IRA. Since qualifying distributions are free from federal income tax, this amount is not reduced by federal income tax. While you would also have accumulated $219,636 in a Traditional IRA, the after-tax value of the Traditional IRA would be $175,709. Assuming that you invested all tax savings attributable to your traditional IRA contributions in a taxable account that earned exactly 6%, you would have accumulated a total of $46,409 in the taxable account by the year you reach retirement age. The combined after-tax value of your traditional IRA and your taxable account would be $222,118.
|
Assumptions
-
This is a hypothetical example intended for illustation purposes only, and does not represent the performance of any specific investment or portfolio, nor is it an estimate or guarantee of future value.
The calculations above assume that earnings are compounded annually. The calculation also assumes that all contributions made to the traditional IRA are deductible, and made at the beginning of each year. It is also assumed that your ability to contribute to a Roth IRA is not limited by your income.
-
Investment fees and expenses have not been deducted. If they had been, the results would have been lower.
When making an investment decision, investors should consider their personal investment horizons and income tax brackets, both current and anticipated, as these may further impact the results of this comparison.
-
This illustration assumes that all distributions made from the Roth IRA qualify for tax-free treatment. This illustration calculates the after-tax
value of the traditional IRA by applying the appropriate tax rate (the anticipated tax rate in retirement for the year of retirement, the current federal income tax rate for
years prior to the year of retirement) to the entire traditional IRA balance, and does not account for the possible application of the additional 10% additional penalty tax
described below. The accumulation of the taxable account is adjusted annually to reflect taxes attributable to the taxable account's earnings, at the current federal income tax rate provided.
-
Withdrawals from traditional IRAs are subject to federal income tax to the extent they consist of deductible contributions and investment earnings. Withdrawals from Roth IRAs that do not qualify for tax-free treatment
are subject to federal income tax to the extent they consist of investment earnings. A 10% additional penalty tax may also apply to withdrawals made prior to age 59 1/2 (some exceptions apply).
| |
| |
|