An IRA can be an effective retirement tool. There are two basic types of Individual Retirement Accounts (IRA): the Roth IRA and the Traditional IRA. Use this tool to determine which IRA may be right for you. Please note that this calculator should not be used for Roth 401(k) comparisons.
While this calculator can provide you with some insight, it was developed to be very general and may not fit everyone’s personal situation. Please feel free to contact our office after using this calculator so that we can perform a more thorough analysis.
If you are 50 or older you can make an additional “catch-up” contribution of $1,000. The “catch-up” contribution amount of $1,000 remains unchanged for 2012. In order to qualify for the “catch-up” contribution, you must turn 50 by the end of the year in which you are making the contribution.
You can no longer make contributions to a traditional IRA in the year you reach 70 1/2.
It is important to note that Roth IRA contributions are limited for higher incomes. If your income falls in a “phase-out” range you are allowed only a prorated Roth IRA contribution. If your income exceeds the phase-out range, you do not qualify for any Roth IRA contribution. The table below summarizes the income “phase-out” ranges for Roth IRAs.
Starting in 2010 high income individuals will have the option to make non-deductible Traditional IRA contributions and then immediately convert them to a Roth IRA. This can effectively eliminate the income phase-out for Roth IRA contributions. This option for Roth IRA contributions may or may not be available in later years depending on future changes to the IRA law. This calculator assumes that you will not be taking advantage of this option.
|Tax filing status||2012 Income Phase-Out Range|
|Married filing jointly or head of household||$173,000 to $183,000|
|Single||$110,000 to $125,000|
|Married filing separately**||$0 to $10,000|
*For the purposes of this calculator, we assume you are not Married filing separately and contributing to a Roth IRA.
It is important to remember that these scenarios are hypothetical and that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
In 2012, for single tax filers with an employer sponsored retirement plan, an IRA contribution is fully tax deductible if your income is below $58,000. It is then prorated between $58,000 and $68,000. If your income is over $68,000 and you have an employer sponsored retirement plan, such as a 401(k), you receive no tax deduction. For married couples, the same rules apply except the deduction is phased out between $92,000 and $112,000.
This calculator automatically determines if your tax deduction is limited by your income. However, there are two unusual situations not automatically accounted for where additional tax phase-outs are applied. First, if your spouse has an employer sponsored retirement plan but you do not, your tax deduction is phased out from $173,000 to $183,000. Second, if you are married filing separately and have an employer sponsored retirement plan, the income phase-out is from $0 to $10,000.
Please note, for distributions to include earnings that are tax free the Roth IRA must be opened for 5 tax years. Eligible tax free distributions include those taken for death or disability, after age 59-1/2, or for a first time home purchase.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
Calculators are provided by an independent third party and are being made available to you as self-help tools for your independent use and are not intended to provide investment advice or be representative of actual results. We do not guarantee their applicability or accuracy in regards to your individual circumstances. The determinations made by these calculators should not be construed as guarantees or projections. Moreover, the reasonableness of certain information may change over time because of changes in tax law, investment trends and your personal circumstances. The information contained here is based on current law and has been obtained from sources believed to be reliable, but we do not guarantee its accuracy. Investment results can vary considerably depending on the type of securities involved, general market conditions and other factors. It is important that you periodically review and update your plans. Raymond James does not provide tax or legal advice. You should contact your tax or legal advisor concerning your particular situation. All investments carry a degree of risk, and past performance is not a guarantee of future results.