This is a simple one-page calculator to illustrate the outstanding liability associated with pre-tax contribution qualified plan accounts. |
Let's have a look at what happens with pre-tax-contribution qualified plan accounts like the Traditional IRA. As a hypothetical example, assume you make annual contributions of $5,000 for 30 years and earn a steady 5% return on the investment. Let's also assume a withdrawal tax bracket of 30% and no other costs of investing. At the end of the 30 year period, your account statement will show a balance of $348,804, but that balance is not all yours. You have a partner in this investment - the IRS. Assuming you're in a 30% tax bracket, you owe the IRS $104,641 of that balance. The remaining $244,163 belongs to you. If tax rates go down in the future, you'll owe the IRS less. However, if tax rates go up in the future, you'll owe them more. |
This tool calculates the future value of a hypothetical systematic or lump-sum investment using standard time value of money formulas. After the known TVM assumptions are entered, the resulting future value is displayed. The future value balance is then split between "Your Share" and "Amount Due IRS" in proportion to the assumed withdrawal tax bracket. For Annual Contributions: Account Balance = FV(Investment Return, Years Until Withdrawal, - Annual Contribution, 0, 1) For Lump-Sum: Account Balance = FV(Investment Return, Years Until Withdrawal, 0, - Initial Balance, 1) In both scenarios: Your Share = Account Balance * ( 1 - Withdrawal Tax Bracket) Amount Due IRS = Account Balance * Withdrawal Tax Bracket |