Single (10% Tax Bracket)
Single (12% Tax Bracket)
Single (22% Tax Bracket)
Single (24% Tax Bracket)
Single (32% Tax Bracket)
Single (35% Tax Bracket)
Single (37% Tax Bracket)
Married Filing Separately (10% Tax Bracket)
Married Filing Separately (12% Tax Bracket)
Married Filing Separately (22% Tax Bracket)
Married Filing Separately (24% Tax Bracket)
Married Filing Separately (32% Tax Bracket)
Married Filing Separately (35% Tax Bracket)
Married Filing Separately (37% Tax Bracket)
Married Filing Jointly (10% Tax Bracket)
Married Filing Jointly (12% Tax Bracket)
Married Filing Jointly (22% Tax Bracket)
Married Filing Jointly (24% Tax Bracket)
Married Filing Jointly (32% Tax Bracket)
Married Filing Jointly (35% Tax Bracket)
Married Filing Jointly (37% Tax Bracket)
Head of Household (10% Tax Bracket)
Head of Household (12% Tax Bracket)
Head of Household (22% Tax Bracket)
Head of Household (24% Tax Bracket)
Head of Household (32% Tax Bracket)
Head of Household (35% Tax Bracket)
Head of Household (37% Tax Bracket)
Traditional IRA
Roth IRA
Your Estimated Tax Savings
$0.00
$0.00
$0.00
Note: This calculator provides an estimate based on the inputs provided and current tax bracket assumptions. Consult a tax professional for personalized advice.
Understanding Traditional vs. Roth IRAs and Tax Savings
Individual Retirement Arrangements (IRAs) are powerful tools for long-term financial planning, offering tax advantages to help individuals save for retirement. There are two primary types: Traditional IRAs and Roth IRAs, each with distinct tax treatments that impact your current and future tax liabilities. This calculator helps illustrate the potential tax savings you can achieve with a Traditional IRA contribution.
Traditional IRA
Contributions to a Traditional IRA may be tax-deductible in the year they are made, depending on your income, filing status, and whether you are covered by a retirement plan at work. This tax deduction lowers your current taxable income, resulting in immediate tax savings. Your investments grow tax-deferred, meaning you don't pay taxes on earnings until you withdraw the money in retirement. Withdrawals in retirement are taxed as ordinary income.
Roth IRA
Contributions to a Roth IRA are made with after-tax dollars, meaning they are not tax-deductible in the year of contribution. However, qualified withdrawals in retirement, including earnings, are tax-free. This offers tax-free income during your retirement years, which can be very advantageous if you expect to be in a higher tax bracket in retirement than you are now.
How the IRA Tax Savings Calculator Works
This calculator focuses on the immediate tax benefit of a Traditional IRA. It estimates your tax savings by calculating the potential reduction in your tax bill based on your contribution amount and your marginal tax bracket.
Taxable Income: Represents your adjusted gross income (AGI) minus any deductions. This is the income subject to taxation.
Annual IRA Contribution: The amount you plan to contribute to your Traditional IRA for the year.
Marginal Tax Rate: The tax rate applied to your highest dollar of income. Contributions to a Traditional IRA are typically deductible up to this rate.
Annual Tax With IRA = (Taxable Income – Annual IRA Contribution) * Marginal Tax Rate
Annual Tax Without IRA = Taxable Income * Marginal Tax Rate
The difference between "Annual Tax Without IRA" and "Annual Tax With IRA" represents your immediate tax savings. For example, if you contribute $6,500 to a Traditional IRA and are in the 22% tax bracket, your immediate tax savings would be $1,430 ($6,500 * 0.22). This means your tax bill for the year would be $1,430 lower.
Choosing the Right IRA
The decision between a Traditional and Roth IRA often hinges on your current income and your expected income in retirement.
If you believe you are in a higher tax bracket now than you will be in retirement, a Traditional IRA might be more beneficial due to the upfront tax deduction.
If you expect to be in a higher tax bracket in retirement, or if you simply prefer tax-free income later, a Roth IRA could be a better choice.
It's important to note that there are income limitations and contribution limits for both types of IRAs. This calculator assumes your contribution is fully tax-deductible for a Traditional IRA, which may not always be the case. Always consult IRS guidelines and a qualified tax advisor for personalized guidance.
function calculateTaxSavings() {
var contributionAmount = parseFloat(document.getElementById("contributionAmount").value);
var taxableIncome = parseFloat(document.getElementById("taxableIncome").value);
var taxRate = parseFloat(document.getElementById("filingStatus").value);
var iraType = document.getElementById("iraType").value;
var taxSavings = 0;
var annualTaxWithIRA = 0;
var annualTaxWithoutIRA = 0;
if (isNaN(contributionAmount) || isNaN(taxableIncome) || isNaN(taxRate)) {
document.getElementById("taxSavingsAmount").innerText = "Invalid input. Please enter valid numbers.";
document.getElementById("annualTaxWithIRA").innerText = "";
document.getElementById("annualTaxWithoutIRA").innerText = "";
return;
}
if (iraType === "traditional") {
// Traditional IRA: Deductible contributions reduce current taxable income
var deductibleAmount = Math.min(contributionAmount, taxableIncome); // Cannot deduct more than taxable income for simplicity here
taxSavings = deductibleAmount * taxRate;
annualTaxWithIRA = (taxableIncome – deductibleAmount) * taxRate;
annualTaxWithoutIRA = taxableIncome * taxRate;
document.getElementById("taxSavingsAmount").innerText = "$" + taxSavings.toFixed(2);
document.getElementById("annualTaxWithIRA").innerText = "Est. Annual Tax With Traditional IRA: $" + annualTaxWithIRA.toFixed(2);
document.getElementById("annualTaxWithoutIRA").innerText = "Est. Annual Tax Without IRA: $" + annualTaxWithoutIRA.toFixed(2);
} else { // Roth IRA
// Roth IRA: Contributions are not tax-deductible, no immediate tax saving on contribution itself.
// However, it affects taxable income for other calculations if a deduction were present.
// For this calculator's purpose, we show no immediate savings on contribution.
taxSavings = 0;
annualTaxWithIRA = taxableIncome * taxRate; // Taxable income is not reduced by Roth contribution
annualTaxWithoutIRA = taxableIncome * taxRate; // Taxable income is not reduced
document.getElementById("taxSavingsAmount").innerText = "$" + taxSavings.toFixed(2);
document.getElementById("annualTaxWithIRA").innerText = "Roth IRA contributions are not tax-deductible.";
document.getElementById("annualTaxWithoutIRA").innerText = "Taxable Income (not reduced by Roth contribution): $" + taxableIncome.toFixed(2);
}
}