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Project the growth of a Traditional IRA account and estimate your tax savings now versus taxes owed at withdrawal.
IRA Future Value:
FV = P(1 + r/12)^(12t) + PMT × [(1 + r/12)^(12t) - 1] / (r/12)
Traditional IRA contributions are pre-tax (deductible). Withdrawals in retirement are taxed as ordinary income.
A Traditional IRA (Individual Retirement Account) is a tax-advantaged account where contributions may be tax-deductible. The money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income.
For 2024, the annual contribution limit is $7,000, or $8,000 if you are age 50 or older. This limit applies across all your IRA accounts combined (Traditional + Roth).
Deductibility depends on your income and whether you or your spouse has a workplace retirement plan. If neither has a workplace plan, contributions are fully deductible regardless of income. Income limits apply if a plan is available at work.
You can make penalty-free withdrawals at age 59.5. Required Minimum Distributions (RMDs) must begin at age 73. Early withdrawals are subject to income tax plus a 10% penalty, with some exceptions.
Choose Traditional if you expect to be in a lower tax bracket in retirement than today — you save taxes now. Choose Roth if you expect to be in a higher bracket in retirement — you pay taxes now and enjoy tax-free growth.