Traditional IRA Contributions - Guide to
Modeling IRA Savings Over Time
Most everyone knows you
can contribute to either a Traditional IRA or a Roth IRA, but how will that affect
YOUR SPECIFIC retirement? On this page we will show you how our software can be
used to model the ongoing savings you make to a Traditional IRA or a Roth IRA,
as well as how that will affect your retirement income picture. Let's get started.
TRADITIONAL IRA
CONTRIBUTION LIMITS |
|
Tax
Year
|
Regular
Contribution Limit
|
Additional
Catch-up Contribution for those 50 & Over
|
| 2005 |
$4,000
|
$500
|
| 2006 |
$4,000
|
$1000
|
| 2007 |
$4,000
|
$1000
|
| 2008 |
$5,000
|
$1000
|
| 2009-2012 |
$5,000
|
$1000
|
| 2013 |
$5,500
|
$1000
|
|
Step 1: In our software
we create a new plan for a "John and Sally Sample". John is 46 and makes
$65,000 and will contribute the maximum to a Traditional IRA until he retires
at age 67. Sally we assume is also 46 and makes $25,000 and will also retire at
67. The maximum John can contribute for the 2005 tax year is $4000. We enter an
Annual Contribution to his IRA of $4,000. And we can see that at retirement age
65 he will have accumulated $159,971 assuming he achieved an average annual return
of 6%.
Step 2: If he could
get a 7% return, then he would have accumulated $179,461.
Step 3: We then flip
to the Retirement Income Graph to see how this savings plays out in retirement.
If we assume a $65,000 retirement income need at a 3% inflation rate, the accumulated
savings only lasts less than 2 years, assuming he also gets a basic Social Security
benefit.
Step 4: Let's add
a $4,000 annual contribution for his wife Sally and also set her investment return
to 6% annually on average. As you can see below they now accumulate $339,432 for
their retirement.
Step 5: What if we
assume a 7% investment return for Sally's IRA too. Then as you can see below they
will accumulate $358,921.
Step 6: We flip back
over to the Retirement Income Graph and scroll our mouse to the first red bar
we see. That is the first year where they start having "shortfalls"
in retirement. As you can see the plan now gets them part way into their 4th year
of retirement before they run out of savings.
Step 7: What if they
tighten their expense belts and live on less than $65,000 annually during retirement.
Since their current income is $90,000 they are already dramatically living on
less. If we cut that back to just $50,000, then their income lasts until age 72
instead of age 70.
Step 8 - ROTH IRA EXAMPLE:
What if we did the same scenario but instead contributed to a Roth IRA, instead
of a Traditional IRA? We will make a simplifying assumption that we are not evaluating
the tax deduction, if any, for the Traditional IRA. We are just going to consider
the same amount going into a Roth IRA. When you reach age 70.5 you won't have
to take out any Required Minimum Distributions, but more importantly the distributions
are tax free as long as you are over age 59 ½. Thus, your money should
last longer. In this case they will accumulate the same $358,921 but those dollars
will be sitting in the Tax-Free investments pool. When we withdraw them in retirement,
no taxes will be due! In which case their money lasts until the beginning of age
74.
This excercise shows
you:
1). why people are not enamored with IRAs because the contribution limits prevent
you from accumulating a substantial retirement nest egg.
2). how easy it is to model very specific IRA illustrations for someone's real
situation.
Unlike "other programs",
ours is Quick, Simple and Visual and let's you instantly see changes in real-time.
It's so simple that anyone can use it. We guarantee that or your money back.
Please
download our demo or view our tutorial video.
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vs. Couples vs. Professional Edition
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Edition
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Edition
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Professional
Edition
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| Quick, Simple, Visual retirement
planning |
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| Print Detailed Reports |
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| Export Data to Excel |
|
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|
| Email and Phone Support |
|
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| Enter unlimited number
of investments |
|
|
|
| Number of retirement plans
you can create |
1
|
1 with
spouse
|
unlimited
|
| Enter Personal Data for
Spouse Separately |
|
|
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| Specify Owner of Investments
as You/Spouse |
|
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| Continue Contributions
and Returns after One Spouse retires and the other keeps working |
|
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| Enter Separate Social Security
and Pension values for each Spouse |
|
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| View Spouse Combined Retirement
Income analysis |
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| Print Spouse information
on Detailed Report |
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| Customize printed reports
with name, company, and contact info |
|
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| Customize disclaimers on
printed report |
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| Life Insurance Needs
Calculation |
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| Added Savings Solver
(additional savings required to eliminate shortfalls) |
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|
Required Minimum Distribution
Calculations |
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| Add digital photo of
clients to Client info |
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Many more exciting enhancements
will be coming this year! Anyone who buys will get updates for ONE FULL YEAR from
date of purchase.
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