How to use the Roth IRA
- Enter your current balance and annual contribution.
- Enter years until retirement and an expected annual return.
- Optionally enter your tax rate now and expected rate in retirement.
- Compare the tax-free Roth balance against the after-tax value of a traditional account.
How the calculation works
The projection is future value of a lump sum plus an annuity of contributions: FV = P(1+r)^n + C × [((1+r)^n − 1)/r]. Because Roth withdrawals are untaxed after age 59½ and a five-year seasoning period, the projected balance is spendable money — unlike a traditional balance, from which income tax must still be deducted.
The choice between Roth and traditional is a bet on tax rates. Contributing to a Roth costs you tax relief today at your current marginal rate; it pays off if your retirement rate is higher, or equal, or if you value certainty against future rate rises. Roth IRAs also have no required minimum distributions in the owner's lifetime, which makes them useful for estate planning, and contributions (not earnings) can be withdrawn at any time without penalty.
FV = P(1 + r)^n + C × [((1 + r)^n − 1) / r]Source: IRS Publication 590-A/590-B rules on Roth IRA contributions and qualified distributions.
Worked example
Balance 24,000, contributing 7,000 a year for 25 years at 7%.
- Lump sum grows to 24,000 × 1.07^25 = 130,290.
- Contributions accumulate to 7,000 × (1.07^25 − 1)/0.07 = 442,700.
- Total ≈ 572,990.
- Contributed 199,000 in total.
About 573,000, all of it withdrawable tax-free in a qualified distribution.
Frequently asked questions
Roth or traditional?+
Roth wins if your tax rate in retirement is likely to match or exceed today's. Traditional wins if you expect a materially lower rate later.
Can I withdraw early?+
Contributions can be withdrawn at any time tax and penalty free. Earnings withdrawn before 59½ and five years generally face tax and a 10% penalty.
Are there income limits?+
Yes, direct contributions phase out above set income thresholds that are adjusted annually.
Are there required minimum distributions?+
Not for the original owner during their lifetime, unlike a traditional IRA.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.