Calculate Tax Deferred (IRA) Retirement Savings
- Calculate Retirement Income From Tax Deferred IRAs
Here is our first retirement math exercise using a free online tool!
While ROTH IRAs have been buzzed about quite a bit, a lot of us still enjoy tax deferred retirement savings. A traditional Individual Retirement Account will allow you to save money for the future while deferring taxes on your savings, and the growth, until you withdraw it.
The theory behind this is that you will make less income when you retire, so your tax rate will be lower. Nobody can tell you if this theory will hold up for you, but the tax deduction that you can take this year may still be very attractive. For more information, you may want to review this article: Roth IRA vs. Traditional IRA.
We will show you where to find a free tool to help you calculate your future savings and future income.
Set Up Your Own IRA
As an aside, if you do not have a retirement plan at work, you can set up an online IRA all by yourself. Many small business owners, contract workers, and people without group retirement benefits can benefit from this. Some of these are run by large banks or other financial companies, and many even allow you to make automatic contributions from your checking or savings account.
Free Online IRA Retirement Savings Calculator
You can hop over here to find an IRA Retirement Savings Calculator that you can use for free. It does not keep any personal information, and you do not have to register to use it.
IRS IRA Contribution Rules
Keep in mind that the IRS limits IRA savings contributions. Many things affect this limit, including current rules, your age, etc. You can always hop over the the IRS website for current rules. You may want to save even more than the allowed contribution, and in that case, you may need to consult an accountant or tax professional for more advice.
How Does The Calculator Work?
Let’s run through a simple example, and then you should be good to go through it on your own. For our simple example, Joe Saver has looked over his possible retirement income. He expects $2k from social security income, plus another $k from an annuity. However, Joe Saver believes that he would really feel comfortable if he could rely upon another $1,000 a month in income. He is making a decent income now, but only expects to work for that income for another 15 years.
He decides that he can afford to set aside $400 a month. He knows that he will be able to qualify for a tax deduction, so the reduction in his tax bill helps him set aside that much money. Using these figures, and estimating a 3 percent return, Joe could expect to be able to withdraw that extra $1,000 a month for only about 15 years.
If Joe expects to retire at 65, he could have the extra income until age 80. This sounds great, but current experts tell us to plan for an income well into our 90′s these days. Hey, even if its not totally good news, it is good to know. Joe Saver may need to figure out how to save more money or reduce his planned income.
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[...] Right now, traditional IRA and ROTH IRA contribution limits are $5,000 a year. Individuals over age 50 may also contribute an extra $1,000 a year as catch up savings. You can start withdrawing money, without any penalty, at age 59 1/2. They are both pretty easy to set up. You can even get an online IRA from the comfort of your PC. Note: We would also like to offer you a chance to use a free online IRA Tax Deferred Savings Calculator. [...]