Traditional IRA Calculator
An Individual Retirement Account, or IRA, is one of the simplest ways to set money aside for the future while getting a break from the IRS along the way. The calculator above lets you plug in your own balance, contribution, and tax numbers so you can see roughly where a Traditional, Roth, SEP, or SIMPLE IRA might land you by retirement, and how that compares to just parking the same money in a regular brokerage or savings account. Below, we walk through what each account type actually is, how they differ, and how to think about the investments you hold inside one.
Traditional IRA
A Traditional IRA is funded with pre-tax dollars, which means your contribution can lower your taxable income for the year you make it (subject to income and workplace-plan limits). The money then grows tax-deferred — you don't pay a cent on dividends, interest, or capital gains while it sits in the account. The trade-off comes later: every dollar you pull out in retirement is taxed as ordinary income. There's also a schedule to follow. Withdrawals before age 59½ generally trigger a 10% early withdrawal penalty on top of regular tax, and once you reach your early seventies, the IRS requires you to start taking required minimum distributions whether you need the cash or not. For a lot of savers, the appeal is straightforward: get the tax deduction now, while income (and the tax bracket that comes with it) is likely higher, and pay tax later when income — and hopefully the rate applied to it — is lower.
Roth IRA
Flip the Traditional IRA on its head and you get a Roth. Contributions go in after-tax, so there's no upfront deduction, but qualified withdrawals in retirement, including all the growth, come out completely tax-free. That's a powerful deal if you expect to be in the same or a higher tax bracket down the road, or if you simply want a pool of money that won't add a single dollar to your taxable income later. Roth IRAs also skip required minimum distributions during the original owner's lifetime, so the account can keep compounding for as long as you want to leave it alone. The catch is eligibility: contribution room phases out once your income crosses certain thresholds, so high earners sometimes need a workaround like a backdoor Roth conversion to get money in at all.
SEP IRA
A SEP IRA (Simplified Employee Pension) is built for the self-employed and small-business owners who want a retirement plan without the paperwork of a full 401(k). Only the employer — which might just be you, if you're a freelancer — contributes, and contribution limits are tied to a percentage of compensation rather than a flat dollar cap, which lets you sock away far more than a standard IRA in a good year. Setup is quick, ongoing administration is minimal, and if you have employees, you generally must contribute the same percentage of pay for them as you do for yourself. It's a favorite for consultants, contractors, and one-person businesses that want meaningful tax-deferred savings without hiring a benefits administrator.
SIMPLE IRA
The SIMPLE IRA (Savings Incentive Match Plan for Employees) fills a middle ground for small businesses with up to 100 employees. Unlike a SEP, both the employee and the employer can contribute. Employees defer a portion of their own paycheck, and the employer is required to either match a percentage of what each employee puts in or make a modest fixed contribution for everyone, whether they participate or not. Contribution limits sit below what a 401(k) allows but above a standard IRA, and the plan avoids the nondiscrimination testing and higher administrative costs that come with a full 401(k). It's a practical stepping stone for a growing company that wants to offer a real retirement benefit before it's ready for something more elaborate.
IRA Rollovers
A rollover moves retirement money from one account into an IRA without triggering tax, most commonly when someone leaves a job and needs a new home for an old 401(k). A direct rollover, where the old plan sends funds straight to the new custodian, is the cleanest route and avoids any tax withholding. An indirect rollover, where the check comes to you first, works too, but the clock starts ticking — you have 60 days to deposit the full amount into an IRA or it counts as a taxable distribution, and possibly an early withdrawal penalty if you're under 59½. It's also worth knowing that the IRS limits indirect, IRA-to-IRA rollovers to one every twelve months, though direct transfers between custodians aren't subject to that limit. Done correctly, a rollover simply lets your retirement savings keep growing tax-deferred (or tax-free, for a Roth) under one roof.
Comparison to 401(k)s
IRAs and 401(k)s solve the same basic problem — saving for retirement in a tax-advantaged way — but they come from different places. A 401(k) is sponsored by an employer and often comes with a company match, higher contribution limits, and a curated, sometimes narrow, lineup of investment choices. An IRA is opened on your own, usually through a brokerage, and trades a smaller contribution ceiling for a much wider menu of things you can actually invest in.
Traditional IRA
Compared with a traditional 401(k), a Traditional IRA usually allows a smaller annual contribution and offers no employer match, since there's no employer involved at all. What it gives back is control: you choose the custodian, the fee structure, and pick from virtually the entire public market rather than a preset list of a dozen or so funds. Many people use both — contributing enough to a 401(k) to capture the full employer match, then funneling additional savings into a Traditional or Roth IRA for the flexibility.
SEP and SIMPLE IRA
For a small business owner, a SEP or SIMPLE IRA is essentially the low-overhead cousin of a 401(k). A 401(k) can support higher contribution limits and features like loans or Roth 401(k) options, but it also comes with plan documents, nondiscrimination testing, and ongoing administrative fees. A SEP or SIMPLE can usually be set up in a single sitting with far less compliance work, which is exactly why so many small employers start there before eventually graduating to a full 401(k) as the business grows.
Investments Options in an IRA
One of the quieter advantages of an IRA is sheer selection. A typical 401(k) might offer somewhere between eight and thirty investment options, chosen by the plan administrator. Open an IRA with most major brokerages, on the other hand, and you get access to nearly every publicly traded stock, bond, ETF, and mutual fund on the market, plus, in the case of a self-directed IRA, assets that go well beyond Wall Street entirely.
Active Investing in Individual Stocks or Similar Assets
Some IRA holders prefer to pick their own individual stocks, bonds, or similar securities rather than buying a fund. This route can pay off, but it demands real research, ongoing attention, and a tolerance for the swings that come with concentrated positions. It suits investors who enjoy following individual companies and are comfortable that their results may diverge meaningfully, for better or worse, from the broader market.
Mutual or Index Funds
For most IRA holders, a mutual fund or index fund is the simpler and more common choice. A single fund bundles together dozens or hundreds of underlying holdings, spreading out risk without requiring you to research each position individually. Low-cost index funds in particular have become a default choice for retirement accounts because they track a broad market benchmark at a fraction of the cost of actively managed alternatives.
Robo-Advisors
Robo-advisors take the fund-picking a step further by automating it. You answer a short questionnaire about your goals, timeline, and risk tolerance, and an algorithm builds and rebalances a diversified portfolio for you, usually for a modest annual fee. It's a practical middle path for investors who want a hands-off IRA without handing everything over to a human advisor.
Others
Target-date funds automatically shift from stocks toward bonds as your chosen retirement year approaches, making them a popular "set it and forget it" option inside an IRA. Some savers also work with a traditional human financial advisor, or mix in sector ETFs and bond funds alongside a core index holding to fine-tune their overall allocation.
Self-Directed IRA
A self-directed IRA uses the same tax rules as a Traditional or Roth IRA but is held through a specialized custodian that allows a far wider range of assets — real estate, private businesses, precious metals, and more — instead of just publicly traded securities. That flexibility comes with real responsibility. There's no fund manager doing due diligence for you, the IRS enforces strict prohibited-transaction rules around self-dealing, and these accounts can be less liquid and more expensive to administer. Self-directed IRAs tend to suit experienced investors who already understand the asset class they want to hold and are comfortable managing the extra paperwork and compliance that comes with it.