Roth IRA Calculator

What this calculator does

Every Roth IRA pitch says “tax-free growth”; almost none says what that’s worth in dollars. This calculator does. It projects your balance from a starting amount plus annual contributions at your chosen return, splits the result into your money versus earnings, and then prices the tax that those earnings would have owed at your expected rate — the number that makes the Roth’s value concrete rather than rhetorical.

How the math works

The growth is standard compound interest with annual contributions (end of year):

FV = P(1 + r)ⁿ + C · ((1 + r)ⁿ − 1) / r

where P is the current balance, C the annual contribution, r the return, n the years. The tax-avoided estimate then applies your expected retirement tax rate to the earnings portion:

tax avoided ≈ (FV − total contributions) × tax rate

It’s an approximation — a real taxable account would owe some tax along the way (dividends, distributions) and favorable capital-gains rates at the end — but it puts the benefit on the right order of magnitude.

A worked example

Starting balance $12,000, contributing $7,000 a year for 30 years at 7%, expecting a 22% tax rate in retirement:

• The $12,000 alone grows to about $91,300
• The contribution stream adds roughly $661,200
• Projected balance ≈ $752,600, of which contributions are $222,000
• Tax-free earnings: about $530,600
• Tax avoided at 22% ≈ $116,700

That six-figure last line is the Roth’s entire argument, earned by nothing more than the account’s label. And it understates the flexibility benefits: no required distributions, and tax-free means predictably tax-free — immune to whatever tax rates look like in three decades.

Practical tips

1. Contribute early in the year if you can. January contributions get ~12 extra months of compounding every year. Over 30 years, the head start is worth roughly an extra year’s contribution in final balance.
2. Automate monthly twelfths. If a lump sum isn’t realistic, divide the annual limit by 12 and automate it. The formula here assumes annual lumps; monthly contributions land very slightly better.
3. Invest the money — don’t let it idle. A Roth IRA is a container, not an investment. Cash sitting uninvested inside one earns nothing tax-free. Pick the investments (broad index funds are the usual default) the same day you fund it.
4. Coordinate with your 401(k). The match-first ordering (see FAQ) usually wins. If you expect unusually low income this year — a sabbatical, early career — that’s also prime time for Roth contributions or conversions at a low tax rate.

Why the label matters so much

Run the identical inputs through the compound interest calculator and you’ll get the same $752,600 — the growth math doesn’t know what account it lives in. The Roth’s magic is entirely in what happens at the end: in a taxable account, a six-figure slice of those earnings belongs to the IRS; in the Roth, it belongs to you. Pair this page with the 401(k) calculator to see both tax-advantaged engines running, and the retirement calculator for whether the combined total funds the retirement you actually want.