About the IRA Calculator
An IRA calculator projects the value of a Traditional or SEP IRA at retirement, given starting balance, annual contributions, expected return, and time horizon. IRAs are the foundational retirement account for self-employed workers and a complement to 401(k)s for everyone else — but the rules around contributions, deductibility, and required minimum distributions are easy to get wrong without modeling.
Traditional IRA: tax-deferred, with phaseouts
Contributions to a Traditional IRA may be tax-deductible in the year contributed, depending on your income and whether you (or your spouse) are covered by a workplace retirement plan. Investments grow tax-deferred; withdrawals in retirement are taxed as ordinary income. Required Minimum Distributions (RMDs) generally begin at age 73 (rising to 75 for those reaching 73 in 2033 or later under SECURE 2.0).
If you're covered by a workplace plan, the deduction phases out at moderate incomes (e.g., for 2024, $77,000–$87,000 for singles, $123,000–$143,000 for joint filers). Above the phaseout, you can still contribute — the contribution is nondeductible — but the tax benefit is much smaller. Always check the current year's phaseout thresholds; they're indexed annually.
SEP IRA: high limits for self-employed
A SEP IRA is the workhorse retirement account for sole proprietors, freelancers, and small business owners. Contributions are made by the employer (which, for self-employed, is yourself) up to 25% of net self-employment income or a high annual cap (e.g., $69,000 for 2024) — far above the standard IRA limit. Contributions are tax-deductible to the business and grow tax-deferred.
SEP IRAs are simple to administer (no annual filings if you have no employees), but if you have employees, you must contribute the same percentage for them. For solo earners, the SEP often beats a SIMPLE IRA on contribution limits but lacks the Roth option that a Solo 401(k) provides — many self-employed savers eventually graduate from SEP to Solo 401(k).
Backdoor Roth: when income disqualifies you from direct Roth IRA
If your income exceeds the Roth IRA contribution phaseout, you can still get money into a Roth via the "backdoor": contribute to a nondeductible Traditional IRA, then convert it to a Roth IRA. There's no income limit on conversions.
The catch: the pro-rata rule. If you have any pre-tax money in any Traditional, SEP, or SIMPLE IRA, the conversion is taxed proportionally — you can't selectively convert only the after-tax portion. Workers with pre-tax IRA balances often roll them into a 401(k) first (if allowed) to clear the path for clean backdoor Roth conversions.
Required Minimum Distributions
Traditional IRAs (and 401(k)s, but not Roth IRAs) require annual minimum withdrawals starting at age 73. The RMD is calculated by dividing your prior year-end balance by an IRS life-expectancy factor. Failing to take an RMD triggers a 25% excise tax on the missed amount (reduced to 10% if corrected timely under SECURE 2.0).
Strategically, retirees with large traditional balances often start partial Roth conversions in their 60s — "filling up" lower tax brackets between retirement and RMD age — to reduce the eventual RMD-driven tax torpedo. The years between retirement and 73 are often the lowest-bracket years a retiree will see.
Formula
- FV = Future value at retirement
- P = Current IRA balance
- PMT = Annual contribution
- r = Annual return
- n = Years until retirement
Worked examples
Traditional IRA, max contribution, 30 years
Starting balance $0, contributing $7,000/year (the 2024 limit for under-50), 7% real return, 30 years. Final balance ≈ $722,000 in today's dollars. With catch-ups after age 50 ($1,000/year extra), the balance can exceed $750K.
SEP IRA for self-employed
Self-employed earner with $200,000 net SE income. Maximum SEP contribution ≈ 20% of net SE income (the formula adjusts for the SE-tax deduction) ≈ $37,000/year. Contributed for 25 years at 7% real, balance ≈ $2.34M.
Backdoor Roth: pro-rata trap
Worker has $50,000 in pre-tax IRA balances and contributes $7,000 nondeductible, then converts. Pro-rata applies: only ~12.3% of the conversion ($7K of $57K total) is after-tax, so 87.7% of the $7,000 conversion ($6,140) is taxable. To avoid this, roll the $50K into a 401(k) first.
Frequently asked questions
What's the difference between a Traditional and Roth IRA?
Traditional IRA contributions may be tax-deductible (with phaseouts), grow tax-deferred, and are taxed on withdrawal. Roth contributions are after-tax, grow tax-free, and qualified withdrawals are tax-free. Higher current bracket → lean Traditional; lower current bracket and a long horizon → lean Roth. Many savers hold both.
Can I contribute to both an IRA and a 401(k)?
Yes. The contribution limits are independent. If you (or your spouse) are covered by a workplace plan, the Traditional IRA deduction phases out at moderate income — but you can still make a nondeductible contribution. Roth IRA eligibility phases out at higher incomes; above the phaseout, use the backdoor Roth.
What is the IRA contribution limit?
The IRS sets the limit annually. Always check the current year's number — it's indexed for inflation. There's also a catch-up contribution for those 50+.
Can I withdraw from an IRA before retirement?
Generally not before age 59½ without penalty — early withdrawals incur a 10% penalty plus ordinary income tax. Exceptions include qualified higher-education expenses, first-time home purchase (up to $10K lifetime), substantially equal periodic payments (Rule 72(t)), and certain hardships. Roth IRAs allow contributions (but not earnings) to be withdrawn anytime tax- and penalty-free.
What's the difference between a SEP IRA and a Solo 401(k)?
Both allow high contributions for self-employed. Solo 401(k) adds the option of Roth contributions, allows loans, and can permit higher contributions at lower income levels (because of the elective-deferral component). SEP is simpler administratively but contribution-only. As income and balance grow, many self-employed savers move from SEP to Solo 401(k).
Do I have to take RMDs from a Roth IRA?
No — Roth IRAs have no RMDs during the original owner's lifetime. (Roth 401(k)s no longer have lifetime RMDs as of 2024 under SECURE 2.0.) Inherited Roth IRAs do have distribution rules, generally requiring full distribution within 10 years for non-spouse beneficiaries.