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Creating a Roth IRA can make a big difference in your retirement savings. There
is no tax deduction for contributions made to a Roth IRA, however all future earnings
are sheltered from taxes. The Roth IRA provides truly tax-free growth.
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Definitions
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- Annual contribution
- The amount you will contribute to your ROTH IRA each
year. This calculator assumes that you make your contribution at the beginning of
each year. In 2008 and 2009, the maximum annual IRA contribution is $5,000 per individual.
It is important to note that this is the maximum total contributed to all of your
IRA accounts. The contribution limit, beginning in 2009, increases with inflation
in $500 increments. An annual change to the contribution limit only occurs if the
cumulative effect of inflation since the last adjustment is $500 or more.
In 2008 and 2009, if you are 50 or older, you can make an additional "catch-up"
contribution of $1000. In order to qualify for the "catch-up" contribution, you
must turn 50 by the end of the year in which you are making the contribution.
It is important to note that Roth IRA contributions are limited for higher incomes.
If your income falls in a "phase-out" range you are allowed only a prorated Roth
IRA contribution. If your income exceeds the phase-out range, you do not qualify
for any Roth IRA contribution. For the purposes of this calculator, we assume that
your income does not limit your ability to contribute to a Roth IRA. The table below
summarizes the income "phase-out" ranges for Roth IRAs.
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Tax filing status
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2009 Income Phase-Out Range
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Married filing jointly or Head of household
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$166,000 to $176,000
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Single
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$105,000 to $120,000
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Married filing separately
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$0 to $10,000
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- Expected rate of return
- The annual rate of return for your IRA. This calculator
assumes that your return is compounded annually and your contributions are made
at the beginning of each year. The actual rate of return is largely dependent on
the type of investments you select. From January 1970 to December 2008, the average
annual compounded rate of return for the S&P 500, including reinvestment of dividends,
was approximately 9.7% (source: www.standardandpoors.com). During this period, the
highest 12-month return was 61%, from June 1982 through June 1983. The lowest 12-month
return was -39%, which happened twice, once from September 1973 to September 1974
and again from November 2007 to November 2008. Savings accounts at a bank may pay
as little as 1% or less but carry significantly lower risk of loss of principal
balances.
It is important to remember that these scenarios are hypothetical and that future
rates of return can't be predicted with certainty and that investments that pay
higher rates of return are generally subject to higher risk and volatility. The
actual rate of return on investments can vary widely over time, especially for long-term
investments. This includes the potential loss of principal on your investment. It
is not possible to invest directly in an index and the compounded rate of return
noted above does not reflect sales charges and other fees that funds and/or investment
companies may charge.
- Current age
- Your current age.
- Age of retirement
- Age you wish to retire. This calculator assumes that
the year you retire, you do not make any contributions to your IRA. So if you retire
at age 65, your last contribution is assumed to have happened when you were actually
64.
- Marginal tax rate
- The marginal tax rate you expect to pay on your taxable
investments.
- Roth total at retirement
- Total value in your Roth IRA at your retirement.
- Total taxable savings
- The total amount you would have accumulated by retirement
in a taxable savings account.
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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 can not 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.
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