Frequently asked questions
What is a Roth IRA equivalent outside the US?
Many countries offer tax-free savings accounts: the UK has ISAs (Individual Savings Accounts), Canada has TFSAs (Tax-Free Savings Accounts), and Australia has an equivalent in certain superannuation structures. The core concept is the same: pay tax on money going in, never pay tax on growth or withdrawals.
When does the Roth advantage become significant?
The longer the time horizon and the higher the returns, the bigger the advantage. Over 10 years the difference may seem modest. Over 25-30 years at 7%+ returns, the tax savings can equal or exceed the total amount you contributed. Time is the Roth IRA's biggest ally.
How is the tax savings figure calculated?
It estimates the taxes you would owe on the investment growth if held in a taxable account, using your marginal rate. The actual tax benefit depends on your real tax situation: capital gains rates, holding periods, and whether you realize gains annually or defer them.
Does this account for contribution limits?
This calculator does not enforce annual contribution limits, which change yearly. As of recent US rules, the annual limit is $7,000 ($8,000 if 50+). Income limits also apply for direct contributions. Check current IRS limits and adjust your annual contribution accordingly.
Should I choose Roth or Traditional?
It depends on whether your tax rate is higher now or in retirement. Roth wins if your retirement tax rate is the same or higher. Traditional wins if you expect a significantly lower rate in retirement. When in doubt, diversifying across both gives flexibility. This calculator helps quantify the Roth side of that comparison.
Can I withdraw contributions early without penalty?
For a US Roth IRA, you can withdraw your original contributions (not gains) at any time, tax-free and penalty-free. Gains withdrawn before age 59½ may incur a 10% penalty plus taxes, with some exceptions. This flexibility is a key advantage over traditional retirement accounts.