Do you want to retire with peace of mind? If so, then you need to start planning for retirement now! One important step is calculating how much money you’ll have in your IRA at retirement. Our free traditional IRA calculator can help. Enter your age, expected annual contribution, and current balance. These financial calculators will do the rest and show you how much-guaranteed income you can generate from your IRA.
- IRA Calculator
- IRA Withdrawal Calculator
- IRA Withdrawal Comparison
- Traditional IRA Contributions
- Traditional IRA Withdrawal Rules
- Traditional IRA Early Withdrawal Exceptions
- Do I Pay Taxes On IRA Withdrawals?
- Is An IRA The Best Retirement Savings Plan?
- IRA Types
- Next Steps
- Frequently Asked Questions
- Related Reading
- Request A Quote
IRA Calculator
The retirement calculator can help estimate your retirement savings. It can estimate your IRA balance at retirement age by inputting retirement savings, annual contributions, and the compounded rate of return. This can help you plan for retirement and make sure you have enough saved. However, it is essential to note that the calculator is mainly intended for use by U.S. residents.
IRA Withdrawal Calculator
As retirement age approaches, many people start to worry about how they will withdraw from their retirement savings accounts. One option that can provide peace of mind and carry significantly lower risk is an annuity with a guaranteed lifetime withdrawal benefit (GLWB).
An annuity is an insurance policy that guarantees to distribute a paycheck to you for the rest of your life, even after the IRA runs out of money. This can provide much-needed security in retirement, knowing that you will have a regular income stream no matter what happens with your other retirement savings. In addition, an annuity can help to automate the retirement withdrawal process, making it one less thing you have to worry about.
So, if you are approaching retirement age and are wondering how to best withdraw from your retirement savings, an annuity with a GLWB may be worth considering.
Note: You can purchase an annuity (with no tax penalties) with your 401(k), IRAs, retirement accounts, investments, and cash.
IRA Withdrawal Comparison
The table below compares withdrawals from IRA accounts with other savings accounts.
| Features | Annuity | 401(k) | IRA | Roth IRA |
|---|---|---|---|---|
| Withdrawal Percentage | 5.20% – 6.55% | 4% | 4% | 4% |
| Can Income Increase? | Yes | Yes | Yes | Yes |
| Can Income Decrease? | No | Yes | Yes | Yes |
| How Long Will Money Last? | Lifetime | 30 Years+ | 30 Years+ | 30 Years+ |
| Annual Fees | 0 – 1.50% | 1% – 4% | 1% – 4% | 1% – 4% |
| Taxation | Taxable/Tax-Free | Taxable | Taxable | Tax-Free |
| Death Benefit | Account Balance | Account Balance | Account Balance | Account Balance |
Example: A 60-year-old retiree starts withdrawing immediately from their $1 million portfolio, they would receive:
Traditional IRA Contributions
Roth IRA Vs. Traditional IRA Contributions
There are two primary types of IRAs: Roth and Traditional. While both have advantages and disadvantages, it is essential to understand the key differences between these savings accounts.
- With a Roth IRA, the after-tax contribution grows tax-free, and you can typically make tax-free withdrawals after age 59½.
- Traditional IRA contributions work differently in that you contribute pre-tax dollars, your money grows tax-deferred instead of tax-free, but withdrawals post age 59½ are taxed as current income.
Another consideration is the IRA tax deduction.
- Traditional IRA Contributions are tax-deductible.
- Roth IRA contributions are not tax-deductible.
Maximum Annual IRA Contribution Limit
A traditional IRA can be an excellent option for those looking to save for retirement. Unlike a Roth IRA, contributions to a traditional IRA are made with pre-tax dollars, meaning that retirement withdrawals are taxable. The maximum annual IRA contribution for a traditional IRA and a Roth IRA is $6,500 or $7,500 if you are 50 or older. More on limits for traditional IRA contributions: IRS
Additional catch-up contribution
The contribution limit increases for those over age 50 who have not yet reached retirement age and can make an additional catch-up contribution of $1,000 per year ($7,000 total) for both Traditional and Roth.
Total Nondeductible Contributions
With a Traditional IRA, your contributions may be tax-deductible. But if you also have a 401(k) through your job, how much of a deduction you get depends on how much money you make. Use this table to determine if your income will affect your ability to deduct IRA contributions.
| Tax Filing Status | Income Phase-Out Range |
|---|---|
| Married filing jointly | $116,000 – $136,000 |
| Single, Head of Household or Married Filing Separately (and have not lived with a spouse for last year)* | $73,000 – $83,000 |
| Married filing separately* | $0 – $10,000 |
| Married filing jointly (spouse has employer plan, IRA owner does not)** | $218,000 – $228,000 |
IRA Investing
Many traditional IRA plans provide for the investment of money in various portfolios. These investment funds include mutual funds, index funds, and exchange-traded funds, all of which employ a range of stock and bond selections. There are several advantages and drawbacks to each savings account.
- The above options usually provide slow and steady growth of assets over time. The above options usually provide slow and steady growth of assets over time. Automated portfolios that adjust risk exposure to market volatility based on projected retirement age are also common with investment companies.
- If your retirement plan is set up in a specific way, you can use your retirement funds to invest in individual stocks.
- Investing involves risk, which means the IRA can lose money.
Ultimately, it’s essential to weigh all the options carefully before deciding what’s best for your circumstances, and remember investing involves risk.
Traditional IRA Withdrawal Rules
Although you can access the money in your IRA account at any time, bear in mind that taking a distribution is considered taxable income. If you’re younger than 59 1/2, the IRS may charge a 10% additional tax on the withdrawal.
Traditional IRA Early Withdrawal Exceptions
Medical expenses or insurance
You can withdraw money from your IRA without being charged a penalty if you need to use it to pay for health insurance premiums while you’re unemployed. To be eligible, you must meet certain conditions:
- First, you were let go from your job.
- For 12 weeks in a row, you received unemployment compensation.
- You may take the distributions during the year you received unemployment compensation or wait until the following year.
- The distributions were provided to you no later than 60 days after returning to work.
An IRA withdrawal penalty is likely waived if unreimbursable medical expenses exceed 10% of your adjusted gross income for the year.
Series of substantially equal payments
If you have to pay a penalty for withdrawing money from your IRA, you can avoid the penalty if you take a 72t early distribution. This means that you can take out money from your retirement account in annual payments based on your current age and the size of your retirement account.
The periodic payments must continue for five years or until age 59 ½, whichever occurs last. Your distribution will be calculated and exact, even if you don’t need the money.
Education
An IRA distribution for expenses such as tuition, books, and supplies is allowed and still only subject to income tax–without an additional penalty.
Military
Some distributions are exempt from the early withdrawal penalty if you’re a qualified military reservist who’s been called to active duty.
Disability
If the IRA owner becomes totally and permanently disabled, the 10% additional tax will be waived.
First-time home purchase
If you are looking to buy your first home, you and your spouse can withdraw $10,000 each from a traditional IRA without paying the penalty.
Do I Pay Taxes On IRA Withdrawals?
Traditional IRA plans offer several tax benefits that can help you to save for retirement.
One of the primary tax benefits is that your tax-deductible contribution to your traditional IRA balance can grow on a tax-deferred basis. This special tax treatment means you won’t pay income taxes on your account balance until you withdraw income from the plan, which applies to all annual contributions.
However, you can not withdraw from the account until 59 1/2 without paying an early withdrawal penalty. The tax benefits of IRA accounts can help you to save more money for retirement.
Is An IRA The Best Retirement Savings Plan?
IRA accounts are a staple in retirement planning, but there are negatives to consider.
- One of the biggest disadvantages is that contributing to a traditional IRA is made with pre-tax dollars, which means you’ll ultimately owe income taxes on the money when you withdraw it in retirement. The tax deduction is limited compared to a Roth IRA’s tax savings in retirement.
- Another drawback is that the traditional IRA contribution limit is very low, making saving as much as you need difficult. The additional catch-up contribution barely makes a dent.
- Finally, much guesswork is involved in planning retirement with a traditional IRA, as it’s difficult to know how much you’ll have accumulated by the time you retire. The compounded rate of return might be great, but who knows where you’ll end up.
Annuities can correct these shortcomings and help provide a secure retirement. Annuities also have the potential to offset with a premium bonus (up to 20%) and carry significantly lower risk. They can enhance withdrawals by guaranteeing an income for the rest of the participant’s lifetime.
IRA Distributions
What happens when you’re ready to start taking distributions from your IRA? Anyone older than 59 ½ can begin receiving distributions from their IRAs, but they can also choose to defer receiving distributions to allow more earnings to accumulate. Distributions can be deferred, at the latest, until the age of 73 (Required Minimum Distributions). Between the ages of 59 ½ and 72, participants have several options: they can take regular distributions, set up a systematic withdrawal plan, or leave their account untouched. Each option has its pros and cons, so it’s important to understand your choices before making a decision.
Regular Distributions
There are two main options for distributions from an IRA plan: a lump sum or installments.
- With a lump-sum distribution, the entire amount is paid out at once. While this may be appealing for its simplicity, it has some downsides.
- For example, the money is no longer invested and thus is not subject to tax-deferred compounding.
- In addition, the distribution is taxed as income in the year it is withdrawn, which can be a significant amount.
- The installment option allows for periodic payments from the IRA plan. This type of distribution can be less appealing because it requires more planning and forethought. However, there are some advantages to consider as well.
- For example, with an installment plan, the money continues to be invested and subject to tax-deferred compounding.
- In addition, the payments can be spread out over time, which can help to minimize the impact of taxes.
- One of the hardest decisions when choosing an installment plan is how much to withdraw each month or year. There are numerous elements to consider, such as life expectancy, investment performance, how much a person may need to live comfortably, and Social Security payments.
Use An Annuity For Systematic Withdrawals For The Rest Of Your Life
One option is to roll over to an IRA annuity. An IRA annuity is an insurance product offered through private insurance companies. No taxes will be imposed on conversions.
- The annuity will pay a guaranteed monthly benefit for the duration of the owner’s projected life expectancy.
- If a joint-and-survivor annuity is purchased, the account owner and designated beneficiary will receive monthly payments for the rest of their expected lives. With substantially less chance of failure, this option can offer financial stability in retirement by providing a consistent flow of income with significantly lower risk.
This option can provide a degree of financial security in retirement, as it can provide a steady stream of income that can last for many years with significantly lower risk.
Leave It Alone
Many people are unaware that they can postpone the distribution of their retirement funds until they reach the age of 72. By doing so, they can take advantage of the benefits of tax-deferred compounding for an additional four years. This can be a significant advantage, as it allows the funds to grow for longer. Furthermore, it can benefit those still working who want to delay taking distributions from their retirement accounts.
However, it is important to note that the government will require mandatory annual distributions starting at 72. This applies to traditional, SIMPLE, and SEP IRAs. RMDs are not mandatory for a Roth IRA.
IRA Types
Traditional IRA
The most popular sort of IRA is the traditional IRA, which provides tax benefits for money placed in a retirement account. Though IRAs are taxable investments, you won’t pay taxes on the amount you contribute to a traditional IRA until you take it out of retirement. However, if you withdraw funds from your typical IRA before you reach age 59½, you will generally be subject to a 10% early withdrawal penalty.
Generally, you may withdraw money from a traditional IRA without paying taxes or penalties if you are 59 1/2 years old and the account has been open for at least five years. However, beginning at age 73 (or when one reaches retirement, if later) and continuing until death, you must take the required minimum distributions (RMDs) from your traditional IRA.
It’s crucial to remember that with a traditional IRA, taxes are postponed rather than waived. That implies that those payments will be taxed at normal income rates when you retire and begin taking distributions from your account.
Roth IRA
Roth IRAs are funded with after-tax income or assets. Money put into Roth IRAs is not taxed when withdrawn, and there is no penalty for withdrawing money once you are 59 ½ years old. Additionally, you are not required to take any money from your Roth IRA during your lifetime. This means that the money in your Roth IRA can grow tax-free throughout your entire lifetime.
Visit the Roth IRA Calculator for more information and to calculate figures involving Roth IRAs.
SEP IRA
Unlike other IRAs, SEP IRAs are simpler to set up and follow a similar structure in tax treatment, tax-deferred growth, and distribution. Employers can also deduct contributions as business expenses. Lastly, small businesses or self-employed individuals typically initiate these accounts for their employees.
The annual contribution limits for a SEP IRA differ from that of a traditional or Roth IRA; in 2023, the income limits are $66,000 or 25% of gross income (whichever is less). This account also has other benefits, such as 100% vesting immediately and no catch-up contribution for those over 50. Lastly, all qualified employees must receive equal benefits under their respective SEP IRAs.
SIMPLE IRA
SIMPLE IRAs are a simplified form of Individual Retirement Accounts that businesses with less than 100 employees may set up. The administrative expenses associated with a SIMPLE IRA are far lower than those required by a 401(k), so they’re well-suited for small firms with fewer than 100 workers. Employers may also deduct payments as business costs, further simplifying the process.
IRA Rollovers
Eligible retirement plans that you can roll over or consolidate into a traditional IRA include 401(K)s, 403(B)s, SIMPLE IRAs, and SEP IRAs. Other eligible plans include 457 plans and inherited employer-sponsored (for designated beneficiaries.) Although you don’t have to pay taxes when rolling company plans directly into an IRA, you must report all rollovers on tax returns regardless of whether any taxes are due.
The 1099R reports distributions from employer’s plans, and the 5498 reports rollover contributions to the IRA.
Next Steps
If you want to retire with peace of mind, planning for retirement now is important. One important step is calculating how much money you’ll have in your IRA at retirement. Our free financial calculators can help. Simply enter your age, expected annual contribution, and current balance. The calculator will do the rest and show you how much guaranteed income you can generate from your IRA. Contact us today for a quote. We would be happy to help you plan your retirement to enjoy your golden years stress-free!
Request A Quote
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Frequently Asked Questions
How much should an IRA earn per year?
Historically, IRA investment funds deliver average annual returns between 7% and 10%.
How much do I need in IRA to retire?
According to financial experts, you should aim to have six times your annual salary in your retirement accounts by age 50 and eight times your annual salary by age 60. By age 67, your total balance should be ten times the amount of your current annual salary. So, for example, if you’re earning $100,000 per year, you should have $1,000,000 saved.
Is a 401k or IRA better?
If you’re looking for the best way to save for retirement, the answer is clear – the 401(k) is better. With a 401(k), you can contribute up to $22,500 per year (compared to just $6,500 per year with an IRA), and if you’re over age 50, you get an even larger additional catch-up contribution maximum of $7,500. Plus, the employer retirement plan often comes with matching contributions from your employer, which can further boost your savings. In short, there’s no question that the 401(k) is the best way to make sure you have a comfortable retirement.
Can I get monthly income from an IRA?
You can withdraw monthly, annually, or as needed with an IRA. Even if you have an employer-sponsored retirement plan through your company, you can transfer those funds to an IRA rollover and still withdraw money when YOU want to. An IRA annuity guarantees a monthly income for the rest of your life–even after the account has been spent down to $0.
Who has the highest interest rate on IRA?
An IRA Fixed Annuity offers the highest interest rate, from 3% to 5% annually.
Does your money grow in an IRA?
Even in years when you can’t contribute, your IRA will still grow through compounding.
At what age can you withdraw from IRA?
You can withdraw from a traditional IRA starting at age 59 1/2. Remember that you will pay ordinary income taxes at the current retirement tax rate.
Do I have to pay taxes on my IRA after age 65?
Yes. Traditional IRAs are taxable investments. Income taxes on withdrawals from traditional IRAs are based on your tax bracket (state and federal tax rate) for the year you withdraw.
Should I max out my IRA every year?
The key to having a successful retirement is building up your investments. If you’re maxing out an IRA or don’t have enough money for monthly expenses, then it’s not worth putting all of that extra strain on everything else in life because there could be even more debt ahead! Contribute what you can and increase future contributions.
How many times a year can I withdraw from my IRA?
The great thing about IRAs is that you can withdraw money from them as often and for whatever reason, as long as there’s no penalty involved. The only downside might be the income taxes you need to pay on your withdrawal, but considering how much these costs nowadays, who cares!?