Roth IRA Tax Calculator

By Shani Valdez

  • Overview

    Roth IRA Tax Calculator
    While there are many free Roth IRA tax calculators available online, they need to be used with caution. Free lump sum and annuity-based calculation programs utilize oversimplified computation models. Required Minimum Distributions (RMDs), life expectancies, term certain methods, single versus joint life expectancy, spousal rollovers, monetary needs surpassing RMDs and estate tax calculations may be excluded from these computations. Therefore, while oversimplified models may technically produce accurate number crunching, these calculations remain inaccurate in real-world scenarios.
  • Lump sum calculators

    Lump sum calculators provide side-by-side comparisons of fully liquidated Roth and Traditional IRA assets. Individuals impute information such as: personal IRA assets; intended yearly retirement contributions; current and future tax rates; years anticipated until retirement and projected asset growth. While amongst the most prevalent of free Roth IRA tax calculators, lump sum models are also the most inaccurate.
  • Lump sum calculator limitations

    RMDs are not factored into lump sum calculations, which negatively skew computations and understate Roth IRA potential. RMD exclusion presents Traditional IRAs in a better and potentially inaccurate light. Furthermore, individuals typically liquidate retirement accounts gradually, not all in one shot. So, while you can use this calculator to get an idea of which retirement plan may be better suited for you, you should still consult with your tax advisor.


  • Flat annuity calculators

    Flat annuity calculators make up the remainder of free online Roth tax calculators. This calculation model enables you to spread out your distributions over a predetermined time period. Since asset growth needs to be calculated and factored into your distribution time frame, this computation ends up being more complex. This calculator provides a better computation model to individuals, but it still has its limitations.
  • Flat annuity calculator limitations

    Free annuity calculators forgo RMDs in their computations. Higher Traditional IRA values are computed due to RMD exclusion, understating Roth IRA potential. Although calculations are more accurate for distributions commencing at age 65 over a 20-year period, inaccuracy creeps in for distributions initiated at 70½ or dispersals set beyond 25 years. Assumptions are also being made that individuals take flat payment dispersals over the years; in reality, payments typically increase over the years, compensating for inflation.
  • Considerations

    The key to using free online calculators is being aware of their limitations. Various financial institutions offer both computation models. Both models give you a sense of direction, but neither provides a completely accurate answer. Annuity calculators offer more flexibility than lump sum calculators by enabling individuals to create the lump sum effect by setting annuity periods to one year, if wanted. Buying power, however, isn't factored into free flat annuity calculators. Therefore, enhanced indexed annuity withdrawal feature and RMD feature annuity calculators are more ideal as they render results more accurately. By no means, however, should these calculators be used as a replacement for a tax advisor.
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