The IRA Calculator compares saving in a tax-deferred traditional IRA with saving in a regular taxable account, including the tax paid in retirement.
After tax, the traditional IRA gives $949,015.74 versus $584,062.63 in a regular taxable account.
| Traditional IRA balance at retirement | $1,116,489.10 |
| After paying retirement tax | $949,015.74 |
| Regular taxable account | $584,062.63 |
| IRA advantage | $364,953.10 |
An IRA is a personal retirement account available to anyone with earned income. A traditional IRA may give a tax deduction for contributions; the money grows tax-deferred and withdrawals are taxed as income. Other types include the Roth IRA, SEP IRA and SIMPLE IRA for small businesses.
In the IRA, the full before-tax contribution is invested and grows at the full rate; at retirement the whole balance is taxed at your expected retirement rate. In the taxable account you invest only what is left after paying today's tax, and the growth is taxed each year. Comparing the two after-tax totals shows the benefit of deferral.
Worked example (defaults): $7,500 a year for 35 years at 6%, a 25% tax rate now and 15% later. Even after paying 15% at the end, the IRA leaves you far ahead of the taxable account.
If you or your spouse have a workplace retirement plan, the deduction for traditional IRA contributions phases out at higher incomes. You may still make non-deductible contributions, which grow tax-deferred but are not deducted.
Traditional IRAs require minimum distributions starting at age 73 (75 for people born in 1960 or later); see the RMD Calculator. Withdrawals before 59½ usually carry a 10% penalty plus tax, with exceptions for first homes, education, disability and some medical costs.
Is a traditional or Roth IRA better? Traditional is better if your tax rate falls in retirement; Roth if it rises.
Can I roll a 401(k) into an IRA? Yes, without tax, when you leave an employer.
What can I invest in? Almost any stock, bond, fund or ETF your provider offers.