What Are IRAs and IRA Calculators?

As people age, they start to think about their retirement. Some may start thinking earlier than others, but, hopefully, they’ll start planning for their golden years soon enough to put away a nest egg. An individual retirement account (IRA) allows someone to put personal funds into an investment vehicle that could deliver decent returns. Granted, even with a conservative IRA, there will be some risk. Proper planning may help choose the most appropriate IRA, one with an acceptable level of risk. Using an IRA calculator might help with making correct decisions.

How IRAs Work

An IRA seems like a hybrid mutual fund and pension plan. IRAs are not intended for the investor to buy and sell at any time. Account-holders purchase an IRA during their working years, intending to access the funds after they reach retirement age. Anyone who withdraws funds from an IRA before reaching the mandatory minimum age would pay the penalty and taxes.

Tax-Deferred Benefits of an IRA

Investors may save money on their taxes when contributing to an IRA. The amount invested is tax-deductible, up to the maximum cap. The investor could put the money saved from taxes into other investments, building an even larger nest egg. The tax benefits serve as a way to entice people to put their funds into such investments.

The IRA Calculator

An IRA calculator works as a tool that provides information about various individual retirement accounts. The investor might compare results from multiple types of IRAs, such as traditional, Roth, and self-employed pension (SEP) IRAs. A would-be investor could use the calculator to perform comparisons of different IRAs while also looking at potential returns on investments based on the figures entered. The results might also offer insights into taxable savings.

A Hypothetical and Not a Guarantee

As SoFi reveals, an individual retirement account calculator “serves as an educational tool only. The results generated are hypothetical and should not be considered a substitute for personalized investment, planning, tax or legal advice.” The tool may give insights the investor finds valuable, such as results that paint a picture of a possible financial outcome many years later.

Using the Calculator

The automatic calculator requires the person wondering about returns to type in specific figures and answer particular questions. The IRA investor may note age, tax filing status, income, annual contribution, speculative annual return, number of years until return, inflation rate, and more.

Setting Up an IRA

Setting up an individual retirement account usually doesn’t require any complicated actions. Typically, someone chooses an IRA available from a reputable brokerage firm. Money may need to go into a money market or checking account first. This account serves as the initiating account when purchasing the IRA.

Investing in Several IRAs

Although there is a maximum contribution amount per year, an investor could select more than one IRA. Some choose to cross-collateralize their IRAs to reduce risk and maximize return potential. Again, no outcome has a guarantee.

An individual retirement account allows people to save for their retirement. A calculator for IRAs presents a possible return on investment outcomes.

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