1. What is a Traditional IRA?

A Traditional IRA (Individual Retirement Account) is a tax-advantaged retirement account where contributions may be tax-deductible, and investment earnings grow tax-deferred until withdrawal during retirement.

2. How Does the Calculator Work?

The calculator uses the Future Value formula for regular contributions:

Where:

• \( Contribution \) — Annual contribution amount (USD)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of years

Explanation: The formula accounts for compound growth of regular contributions made at the beginning of each period.

3. Importance of Retirement Planning

Details: Calculating future values helps individuals understand how regular contributions can grow over time with compound interest, emphasizing the importance of starting early.

4. Using the Calculator

Tips: Enter annual contribution in USD, annual interest rate as a percentage (e.g., 7 for 7%), and number of years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What are the contribution limits for Traditional IRAs?
A: For 2023, the limit is $6,500 ($7,500 if age 50 or older). Limits are subject to change annually.

Q2: How does tax deferral work in a Traditional IRA?
A: Contributions may be tax-deductible, and investment gains aren't taxed until withdrawal, typically during retirement.

Q3: What's a realistic rate of return assumption?
A: Historically, a balanced portfolio might average 6-8% annually, but actual returns vary year to year.

Q4: When can I withdraw from a Traditional IRA?
A: Generally after age 59½ to avoid penalties, with Required Minimum Distributions starting at age 73.

Q5: How does this differ from a Roth IRA?
A: Roth IRA contributions are made with after-tax dollars but qualified withdrawals are tax-free, while Traditional IRA offers upfront tax benefits.