Payment Timing = 12
Tax Rate = 15
Retirement Value =
Calculates the future value of either a taxable or non-taxable Individual Retirement Account (IRA).
Roth is an example of a taxable IRA as taxes are extracted before accruing interest. SEP is an example of a non-taxable IRA, as no taxes are levied until money is extracted at retirement.
- Investment: Amount invested on a periodic basis. That basis is determined by the Payment Timing row.
- Payment Timing: How often a payment is made into the IRA account, monthly or yearly.
- Years: Number of years until retirement.
- Interest/Year: Dividend or interest rate expressed as a percentage.
- Tax Rate: Tax rate (long-term capital gains) expressed as a percentage. If the IRA is non-taxable then this number should be 0. The current US tax code is 15% for long-term capital gains.
- Retirement Value: The value of the account at retirement.
A client will invest $500 per month for 30 years in a taxable IRA. The expected return is 5%. What's the value of this account at retirement?
- Investment: 500
- Payment Timing: Monthly
- Years: 30
- Interest/Year: 5.0
- Tax Rate: 20.0
Select = on Retirement Value row. The value of this account will be $348,181.45.
What if the same investment was placed in a non-taxable investment instead? What would be the value of the account at retirement?
- Tax Rate: 0.0%
Select = on Retirement Value row. The value of this account will be $417,863.19.
Individual Retirement Accounts