7 Ways to Find the Best IRA Calculator for IRA Distributions, Withdrawal, and Retirement Calculations

2017 Guide: Finding the Best IRA Calculator for IRA Distributions, Withdrawal, and Retirement Calculations

The younger you start saving for retirement, the more money you stand to earn over time thanks to the beauty of compound interest.

An individual who starts putting away money for retirement at the age of 25 will have much more money to spend in retirement compared to someone who starts putting away a similar amount 10 years later. Seeing this for yourself is as simple as plugging the numbers into an IRA calculator.

The traditional IRA and the Roth IRA are discussed often in the context of retirement planning, in addition to the popular 401(k).

An individual retirement account (IRA) allows you to enjoy some tax breaks while saving and investing for your retirement.

Determining how much you will need to put away each month in order to enjoy a certain “salary” in retirement is much easier when you have a tool like an IRA calculator or Roth IRA calculator at your disposal.

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Knowing you need to use something and figuring out how to find it (let alone use it!) are two entirely different things.

This article will provide helpful tips for finding these retirement calculators, with intentional focus on IRA calculators and Roth IRA calculators.

These tips will also cover how to use them, how to understand them, and how to go about conducting research on retirement financial planning.

1. Understand the Difference Between an IRA and a Roth IRA Before Using Either Calculator

There is a reason there is an IRA calculator and a Roth IRA calculator; they are two distinct financial products, even though they share similarities.

Both accounts enjoy tax advantages to encourage and facilitate retirement savings. The key difference is when you have to pay the tax man for either account.

With a traditional individual retirement account, income tax is paid when the IRA withdrawal happens (preferably during retirement, if all goes as planned).

This tax deferment would be taken into consideration when your IRA distribution is calculated by an IRA calculator.

But if you are paying income tax on your IRA withdrawals, when do you reap the tax benefits of having a traditional IRA retirement plan?

Traditional IRA retirement plans experience tax savings at the time contributions are made. If you contribute money to your individual retirement account, that contribution is tax deductible for the current calendar year.

As a result, you experience the tax savings at the time of contribution as opposed to at the time of IRA withdrawals. It is deductible for both state and federal income taxes. Your IRA retirement calculator will allow you to figure out how much money you would potentially save using a traditional IRA retirement plan.

With a Roth IRA, your contributions are not tax deductible but, generally speaking, you are not required to pay taxes on your Roth IRA withdrawals later on. Again, these are the kinds of financial subtleties your Roth IRA retirement calculator will lay out in detail as they apply to your situation.

In summary, traditional IRA contributions are tax deductible, but traditional IRA withdrawals are taxed. Roth IRA contributions are not tax deductible, but Roth IRA distributions are tax-free.

For your convenience, use this IRA vs. Roth IRA calculator from Bankrate to make comparisons if you do not have the time to conduct comprehensive research on the difference between the two retirement accounts. This IRA vs. Roth IRA calculator will help you quickly determine which IRA retirement option is best for you.

2. Familiarize Yourself with the IRA Withdrawal Rules Before Choosing an IRA Retirement Calculator

Using an IRA retirement calculator or Roth IRA retirement calculator is not an effective use of your time if it turns out that you do not understand how IRA withdrawals work (and are later penalized). Additionally, you may not fully understand the IRA withdrawal rules or IRA distribution rules and face penalties down the road if you decide to use one option based solely on what the IRA calculator tells you about your potential future earnings.

Aside from the timing of tax advantages, there is another big difference between a traditional individual retirement account and a Roth IRA: the IRA distributions vs. Roth IRA distributions.

If you having a traditional individual retirement account, you must start receiving IRA distributions at 70 and a half years old.

This is stipulated by the IRA distribution rules, and this is something that you may not automatically learn from using a simple IRA calculator. Imagine thinking you can leave your money in your individual retirement account, only to be forced by the IRA withdrawal rules to take it out and stop benefiting from its productive growth in the account.

On the other hand, Roth IRA distributions are not mandatory at any age. There are no particular Roth IRA distribution rules stipulating when an account holder must withdraw or spend the money, meaning a Roth IRA account holder can let the money continue growing well into their retirement if they do not need immediate access to the funds.

This IRA vs Roth IRA calculator from Moneychimp allows for quick and easy comparison of the tax advantages of either account IRA retirement plan based on your unique financial situation.

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3. Find Out Whether You Are Eligible for a Roth IRA Before Wasting Time with a Roth IRA Retirement Calculator

Some people may be attracted to the idea of a Roth IRA based on what they have read and before even using a Roth IRA calculator. We hate to be the bearer of bad news, but as much as you may be ready to start stashing money in a Roth IRA, you may not be eligible.

A simple IRA calculator may not tell you this, so review the requirements before playing around with a Roth IRA calculator. While anyone with an income can open a traditional individual retirement account, there are particular Roth IRA retirement requirements.

The Internal Revenue Service (IRS) has different rules for each kind of retirement account. While there are not very strict Roth IRA withdrawal rules, there is an income cap after which individuals cannot contribute to a Roth IRA. Using a simple IRA calculator can be helpful for seeing the numbers, but if you are using a Roth IRA calculator when you are not even eligible, it can be a waste of time and needlessly disappointing.

Additionally, Roth IRA eligibility requirements assign income caps based on your marital status, and how you file your taxes:

If you are single, you must make less than $117,000.
If you are married, you must make less than $184,000.

As mentioned earlier, there is not much in the form of Roth IRA distribution requirements, but there are definitely Roth IRA contribution limits. (If not, people would contribute an inordinate amount of money and make a lot of tax advantaged returns on their investments.) These limts are:

$5,500 maximum contribution a year: if you are under 50.
$5,500 plus $1,000 catch up contribution a year: if you are 50 or older

4. Consider Your Estimated Income Bracket in Retirement to Decide Which IRA Retirement Plan Is Most Beneficial

The tax advantages of either a traditional individual retirement account or a Roth IRA is an important thing to take into consideration.

So, what is the best way to choose your IRA retirement plan? Ask yourself: will my income be higher in retirement, about the same, or lower?

It sounds like a ridiculous question to ask. How on earth can you know what your earnings will be twenty, thirty, forty, or even fifty years down the line? But taking the time to estimate this number could play a large role in how much your IRA withdrawals or Roth IRA distributions benefit you later.

Consider all of your potential sources of income in retirement. Think of your retirement investments, Social Security, real estate investments, and more.

If you think that your income in retirement will be the same or higher than while you were working, choose a Roth IRA and use a Roth IRA calculator. If you think it will be less, a traditional IRA is the better choice and you should consult a traditional IRA calculator.

Why is this the case? Well, if you are going to be making more money in retirement than you are now, you will be in a higher marginal tax bracket, which means you will be paying more in taxes. It is better to take the relatively smaller hit now and enjoy the tax savings later.

If you are going to be making less, it is better to take advantage of the tax deductible status of your IRA contributions now and pay a lower tax rate when you do take out your IRA withdrawals later.

5. Look for IRA Calculators and Roth IRA Calculators That Specifically Help You Determine How Much You Can Contribute Each Year

Almost anyone with an earned income can open and contribute to a traditional individual retirement plan, but there is an income cap for those who qualify for a Roth IRA, and a person’s eligibility can change from year to year.

Specifically consulting a Roth IRA calculator that helps you determine the amount you can contribute is very helpful in this regard.

Check out this Roth IRA calculator to determine eligibility and monthly contribution amounts (some individuals will fall on a sliding scale based on their earned income).

6. Don’t Forget About Penalty Payments for Early Withdrawals

Traditional IRAs and Roth IRAs come with so many perks because they are designed to encourage people to save for retirement. But one thing to take into consideration when using a traditional IRA calculator or a Roth IRA calculator is the potential impact of penalty payments.

Early Withdrawal Traditional IRA Calculator

If you make the early withdrawal from a traditional IRA, you are subject to the normal tax rate you have to pay on income plus a 10 percent penalty on the IRA withdrawal if you have not yet reached 59 and a half years old.

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Those interested in quickly figuring out how much they stand to pay on an early traditional IRA withdrawal can use an IRA calculator designed specifically for such a calculation.

Early Withdrawal Roth IRA Calculator

The Roth IRA generally carries the same restrictions and penalties as the traditional IRA, but it does carry some flexibility.

While the law is designed to prevent people from using the funds from their retirement accounts for any purpose, there is flexibility built in that accounts for situations where the money can be extremely helpful (such as recovering from a disability or buying your first home). Under such circumstances, you can be exempt from paying the 10 percent penalty when making an early Roth IRA withdrawal.

7. Consider the Resources Offered by Your Financial Institution When Comparing IRA Calculators to Roth IRA Calculators

Chances are that you signed up for an individual retirement account through the financial institution you currently bank with. Banks typically have information and resources available for customers exploring their IRA retirement options, and this includes IRA calculators and Roth IRA calculators for easy and convenient comparisons.

Visit your bank’s website or stop by their branch to browse their resources. You can also find great tools for financial research through many of the financial technology companies that are taking a bit out of traditional financial institutions’ client base.

Companies like Betterment provide online tools that quickly and easily let users know what financial products are best for their current income, budget, and future plans. Betterment provides a helpful IRA calculator supplemented with information about the different kinds of individual retirement accounts to help individuals make the right decision.

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The financial technology industry has been hungrily filling the investment gap left by traditional banks. Banks have traditionally saved their investing resources and information for their high-net-worth clients (who can afford financial advisors) and stuck to making money off of day-to-day bank fees from their customers of more modest means.

Financial technology companies that use the internet and algorithms to keep costs low have quickly developed convenient solutions and educational resources for the kinds of customers banks have typically left behind.

Helpful information on IRA retirement options and access to IRA calculators is only the tip of the iceberg when it comes to the fintech world.

You work hard when you are young so that you can relax when you are older. But in order to rest comfortably in old age, you need to prepare for your retirement now. Take advantage of time to build your retirement income through diligence, savings, and proper investment.

Use IRA calculators and Roth IRA calculators to determine how much you should be contributing, and conduct thorough research on the IRA withdrawal and contribution rules to understand exactly where your hard earned money is going.

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