Roth IRA Compound Interest Calculator
Calculate how your Roth IRA grows tax-free over time. See the impact of annual contributions, compound growth, and decades of tax-free compounding on your retirement savings.
- 100% tax-free growth — all Roth IRA earnings and withdrawals in retirement are completely tax-free
- 2026 contribution limit: $7,000 — plus $1,000 catch-up if you're 50+
- Income limits apply — single filers above $161,000 MAGI face reduced limits
- No RMDs — unlike traditional IRAs, Roth IRAs have no Required Minimum Distributions
| Year | Principal | Interest | Balance |
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| Year | Initial | Contributions | Interest | Balance |
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CAGR = (Ending Value / Starting Value)^(1/Years) - 1A = P × e^(r × t)Where e ≈ 2.71828 (Euler's number)
Why the Roth IRA Is a Compounding Powerhouse
The Roth IRA is uniquely powerful because of one feature: all growth is tax-free. In a taxable account earning 8%, you might lose 1-2% annually to taxes on dividends and capital gains distributions. In a traditional IRA, you defer taxes but eventually pay income tax on every dollar withdrawn. In a Roth IRA, the growth compounds completely untouched by taxes, and every dollar you withdraw in retirement is yours to keep.
The IRS outlines Roth IRA rules in detail, including contribution limits, income eligibility, and withdrawal rules.
Consider the impact over 30 years: $7,000 contributed annually at 7% growth becomes approximately $661,226. In a Roth IRA, you keep all $661,226. In a traditional IRA with a 22% tax rate in retirement, you'd keep about $515,756 after taxes. The tax-free compounding advantage is worth over $145,000 on the same contributions and returns.
2026 Roth IRA Contribution Limits
| Filing Status | MAGI | Contribution Limit |
|---|---|---|
| Single / Head of Household | Under $146,000 | $7,000 (full) |
| Single / Head of Household | $146,000 - $161,000 | Reduced (phase-out) |
| Single / Head of Household | Over $161,000 | $0 (backdoor Roth available) |
| Married Filing Jointly | Under $230,000 | $7,000 each (full) |
| Married Filing Jointly | $230,000 - $240,000 | Reduced (phase-out) |
| Age 50+ | Within limits | $8,000 (catch-up) |
If your income exceeds the limits, a backdoor Roth IRA (contributing to a traditional IRA then converting) remains a legal strategy to access Roth benefits regardless of income level.
These limits are published annually by the IRS.
Roth IRA vs. Traditional IRA
Roth IRA: Contribute after-tax dollars. Growth and withdrawals are tax-free. No RMDs. Best for younger investors or those expecting higher future tax rates.
Traditional IRA: Contribute pre-tax dollars (if deductible). Growth is tax-deferred. Withdrawals taxed as income. RMDs start at age 73. Best for those in high tax brackets who expect lower rates in retirement.
Both compound at the same rate. The difference is when you pay taxes. For someone in their 20s or 30s, the Roth typically wins because decades of tax-free compounding outweigh the immediate tax deduction of a traditional IRA.
Backdoor Roth IRA Strategy
If your income exceeds the Roth IRA contribution limits, a backdoor Roth IRA allows you to still benefit from tax-free compounding. The process involves two steps: contribute to a traditional IRA (there are no income limits for non-deductible contributions), then convert that traditional IRA to a Roth IRA. The backdoor Roth IRA strategy is legal and widely used by high-income earners.
There are important considerations:
- Pro-rata rule: If you have existing pre-tax IRA balances, the conversion is taxed proportionally across all IRA accounts. The IRS Publication 590-A explains the aggregation rules.
- Mega backdoor Roth: Some employer 401(k) plans allow after-tax contributions beyond the normal limit ($23,500 in 2026), which can then be converted to Roth. This can enable up to $70,000 total (2026) in Roth contributions annually.
- Tax implications: Only the earnings between contribution and conversion are taxed. If you convert promptly, the tax impact is typically minimal.
Roth IRA Growth Projections
The following table shows how a Roth IRA grows when you contribute the maximum amount annually ($7,000 for 2026) at different average annual returns. All growth and withdrawals are completely tax-free, as confirmed by Charles Schwab's Roth IRA overview.
| Years Contributing | Total Contributed | At 6% Return | At 7% Return | At 8% Return | At 10% Return |
|---|---|---|---|---|---|
| 10 | $70,000 | $92,231 | $96,742 | $101,474 | $111,529 |
| 20 | $140,000 | $257,434 | $286,972 | $320,003 | $399,497 |
| 30 | $210,000 | $558,049 | $661,226 | $786,141 | $1,143,547 |
| 40 | $280,000 | $1,085,684 | $1,372,059 | $1,741,295 | $2,899,893 |
At a 7% average return, maxing out a Roth IRA for 30 years turns $210,000 in contributions into over $661,000 — and every dollar is tax-free in retirement. Starting at age 25 and contributing until 65 (40 years) could yield over $1.37 million in tax-free wealth.
Frequently Asked Questions
The 2026 Roth IRA contribution limit is $7,000, or $8,000 if you're age 50 or older. This limit applies to your total IRA contributions (Roth plus Traditional combined). Your ability to contribute may be reduced or eliminated if your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds.
Yes. You can withdraw your Roth IRA contributions (not earnings) at any time, tax-free and penalty-free, for any reason. This is because you already paid taxes on the money before contributing it. Earnings, however, must remain in the account until age 59½ and the account has been open for at least 5 years to avoid taxes and penalties.
A backdoor Roth IRA is a legal strategy for high-income earners who exceed the Roth IRA income limits. You contribute to a traditional IRA (non-deductible) and then convert that contribution to a Roth IRA. There's no income limit on Roth conversions. This strategy works best if you have no existing traditional IRA balances, to avoid the pro-rata rule.
They serve different purposes. A 401(k) has higher contribution limits ($23,500 vs. $7,000) and may include an employer match. A Roth IRA offers tax-free withdrawals, more investment options, and no RMDs. The optimal strategy is usually: contribute to your 401(k) up to the employer match, then max out a Roth IRA, then continue with the 401(k).
A Roth IRA compounds through the growth of the investments you hold inside it (stocks, bonds, mutual funds, ETFs). When dividends are reinvested, they buy more shares, which generate more dividends, creating compound growth. The key advantage is this growth is never reduced by taxes, allowing your full balance to compound year after year.
Place your highest-growth investments in your Roth IRA to maximize the tax-free benefit. Low-cost total stock market index funds or S&P 500 index funds are popular choices. Since the Roth is typically a long-term (20-40 year) vehicle, a stock-heavy allocation is appropriate for younger investors. As you approach retirement, gradually shift toward more conservative allocations.
It depends on the interest rate of your debt. Always contribute enough to get your full 401(k) employer match first — that's a guaranteed return. For debt above 7-8% interest (like credit cards), pay that off before contributing to a Roth IRA. For lower-interest debt like federal student loans (3-5%) or a mortgage (6-7%), you can often benefit from contributing to a Roth IRA simultaneously, since long-term stock market returns have historically exceeded these rates. The CFPB's debt resources can help you evaluate your situation.
Yes, you can convert any traditional IRA to a Roth IRA regardless of income level. You will owe income tax on the converted amount (since traditional IRA contributions were tax-deductible). A Roth conversion makes sense if you expect to be in a higher tax bracket in retirement, want to eliminate RMDs, or want to leave tax-free money to heirs. Consider converting in years when your income is lower to minimize the tax hit. The Fidelity Roth conversion checklist can help you evaluate whether a conversion is right for you.
Yes. One of the most significant advantages of a Roth IRA is that you can withdraw your contributions (not earnings) at any time, for any reason, without taxes or penalties. This is because you already paid income tax on the money before contributing. Earnings, however, generally must stay in the account until age 59½ and the account must be open for at least 5 years for tax-free withdrawal. This flexibility makes the Roth IRA a powerful dual-purpose vehicle for both retirement compounding and emergency savings. Just keep in mind that withdrawing contributions means less money benefiting from long-term investing and tax-free growth.
A backdoor Roth IRA is a legal strategy that allows high-income earners who exceed the Roth IRA income limits to still fund a Roth IRA. The process works in two steps: first, you make a non-deductible contribution to a traditional IRA (there are no income limits for this); then, you convert that traditional IRA to a Roth IRA. The key consideration is the pro-rata rule — if you have existing pre-tax money in any traditional IRA, the conversion will be partially taxable. To avoid this, many investors roll existing traditional IRA balances into their employer 401(k) before executing the backdoor conversion. When done correctly, this strategy lets you take advantage of investment strategies with the full benefit of tax-free Roth growth.
The widely recommended approach is a three-step strategy: first, contribute enough to your 401(k) to get the full employer match (that is an immediate 50-100% return on your money). Second, max out your Roth IRA ($7,000 in 2026, or $8,000 if 50+) to take advantage of tax-free growth and more flexible investment options. Third, go back and contribute more to your 401(k) up to the $23,500 annual limit. This order maximizes both the guaranteed return from employer matching and the long-term benefit of tax-free compounding. The power of regular contributions to both accounts cannot be overstated.
Yes, you can open and maintain multiple Roth IRA accounts at different brokerages. However, the total annual contribution limit ($7,000 in 2026, or $8,000 if 50+) applies across all your Roth and Traditional IRAs combined. For example, if you contribute $4,000 to one Roth IRA, you can only contribute $3,000 more across all other IRAs. While having multiple accounts is allowed, most financial advisors recommend consolidating into one or two accounts for simpler management and to better implement a cohesive investment strategy. The key is to ensure your combined contributions do not exceed the limit, and that your total portfolio allocation supports starting early with consistent growth.
Market downturns are a normal part of long-term investing. If the market crashes, your Roth IRA balance will temporarily decline, but history shows that markets have always recovered and reached new highs given enough time. The S&P 500 has experienced numerous crashes (2000, 2008, 2020) yet has averaged roughly 10% annual returns over the long term. The worst thing you can do is panic-sell during a downturn and lock in losses. A market crash is actually an opportunity — your regular contributions buy more shares at lower prices, which amplifies future gains when the market recovers. Stay the course, keep contributing, and let retirement compounding work in your favor over decades.
Roth IRA Eligibility and Income Limits
Before you can contribute to a Roth IRA, you need to understand the income eligibility requirements. The IRS sets Modified Adjusted Gross Income (MAGI) thresholds that determine how much you can contribute each year. For 2024, the limits are as follows:
| Filing Status | Full Contribution | Phase-Out Range | No Contribution |
|---|---|---|---|
| Single / Head of Household | Under $146,000 | $146,000 - $161,000 | Over $161,000 |
| Married Filing Jointly | Under $230,000 | $230,000 - $240,000 | Over $240,000 |
| Married Filing Separately | $0 | $0 - $10,000 | Over $10,000 |
The annual contribution limit is $7,000 for those under 50 and $8,000 for those 50 and older (the extra $1,000 is a catch-up contribution). These limits apply to your combined contributions across all Traditional and Roth IRAs.
If your income falls within the phase-out range, you can still make a partial contribution. The amount is calculated using a formula based on how far your MAGI exceeds the lower threshold. If your income exceeds the upper limit entirely, the direct contribution amount is $0 — but all is not lost.
The Backdoor Roth IRA Strategy for High Earners: If your income exceeds the Roth IRA limits, you can still access tax-free retirement compounding through the backdoor Roth IRA. This involves contributing to a non-deductible Traditional IRA and then converting it to a Roth IRA. There is no income limit on Roth conversions. This strategy is especially effective if you do not have existing pre-tax Traditional IRA balances, which would trigger the pro-rata rule and create a partial tax liability on conversion. Many high earners use this approach annually to build substantial tax-free retirement wealth through the power of long-term investing.
For official details on eligibility, contribution limits, and phase-out calculations, see the IRS Roth IRA Rules.
Roth IRA vs Traditional IRA: A Detailed Comparison
Choosing between a Roth IRA and a Traditional IRA is one of the most important retirement planning decisions you will make. The fundamental difference comes down to when you pay taxes: with a Roth IRA, you contribute after-tax dollars and enjoy tax-free growth and withdrawals; with a Traditional IRA, you contribute pre-tax dollars (if eligible for the deduction) and pay income tax when you withdraw in retirement.
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Tax on Contributions | After-tax (no deduction) | Pre-tax (tax-deductible*) |
| Tax on Growth | Tax-free | Tax-deferred |
| Tax on Withdrawals | Tax-free (qualified) | Taxed as ordinary income |
| 2024 Contribution Limit | $7,000 ($8,000 if 50+) | $7,000 ($8,000 if 50+) |
| Income Limits | Yes (phase-out applies) | No limit to contribute* |
| Required Minimum Distributions | None (during owner's life) | Starting at age 73 |
| Early Withdrawal (Contributions) | Anytime, tax/penalty-free | Taxed + 10% penalty before 59½ |
| Best For | Younger investors, expect higher future taxes | High current income, expect lower retirement taxes |
*Traditional IRA deductibility is subject to income limits if you or your spouse have a workplace retirement plan.
When Roth is the better choice: If you expect to be in a higher tax bracket in retirement than you are now, the Roth IRA is almost always superior. This is common for younger investors in their 20s and 30s who are early in their careers with relatively lower incomes. The decades of tax-free compounding through starting early create enormous advantages. Additionally, the absence of Required Minimum Distributions gives Roth IRA holders more flexibility in retirement and makes it an excellent vehicle for estate planning.
When Traditional is the better choice: If you are currently in a high income tax bracket and expect your income (and tax rate) to be significantly lower in retirement, the Traditional IRA's upfront tax deduction is more valuable. The immediate tax savings can be invested elsewhere, and you pay taxes at a lower rate when you withdraw. This is also the better choice if you need the tax deduction now to reduce your adjusted gross income for other tax benefits.
Many investors use both types as part of a diversified investment strategy, contributing to a Roth IRA while also utilizing a pre-tax 401(k) through their employer. For more guidance on retirement account types, see the SEC Retirement Account Guide.
Roth IRA Investment Strategies by Age
Your Roth IRA investment allocation should evolve as you age. Younger investors can afford to take more risk because they have decades for the market to recover from downturns. As you approach retirement, shifting toward more conservative investments helps protect your accumulated wealth. Here are suggested allocations based on age and time horizon:
| Age Range | Strategy | Stocks | Bonds | Cash/Stable | Focus |
|---|---|---|---|---|---|
| 20 - 30 | Aggressive Growth | 80 - 90% | 10 - 15% | 0 - 5% | Maximum growth, total market index funds |
| 30 - 45 | Balanced Growth | 60 - 80% | 15 - 30% | 5 - 10% | Growth with moderate diversification |
| 45 - 55 | Moderate | 50 - 60% | 30 - 40% | 5 - 10% | Balanced risk, preservation begins |
| 55+ | Conservative | 30 - 50% | 35 - 50% | 10 - 20% | Capital preservation, income generation |
Ages 20-30: This is the time to be aggressive. With 30-40+ years until retirement, you can weather market volatility and benefit from the highest long-term returns that equities offer. A portfolio of 80-90% stocks — especially low-cost total stock market and international index funds — maximizes the benefit of starting early with tax-free compounding. Even a major market crash at this stage is a buying opportunity.
Ages 30-45: You are likely in your peak earning years, making regular contributions consistently. A 60-80% stock allocation still captures strong growth while beginning to add bond diversification. Consider incorporating small-cap and international diversification for broader exposure.
Ages 45-55: Retirement is on the horizon. Gradually shift to a 50-60% stock allocation, increasing your bond holdings to reduce portfolio volatility. This is the time to ensure your investment strategies are aligned with your retirement timeline and income needs.
Ages 55+: Capital preservation becomes more important. A 30-50% stock allocation keeps some growth potential while bonds and stable investments protect against large drawdowns. Remember, a Roth IRA has no Required Minimum Distributions, so you are not forced to withdraw — you can continue letting your investments grow tax-free as long as you want.
For additional retirement planning guidance, visit the CFPB Retirement Planning resource.
The Tax-Free Growth Advantage
The most powerful feature of a Roth IRA is that your investment growth is never taxed. To illustrate the impact, consider contributing $500 per month for 30 years at an average annual return of 8%. In a Roth IRA, your total balance would grow to approximately $745,180 — and every dollar is yours, completely tax-free.
In a taxable brokerage account with the same contributions and returns, you would owe capital gains taxes on dividends each year and on your gains when you withdraw. Assuming a 15% long-term capital gains tax rate on withdrawal, the after-tax value would be significantly less. The following table illustrates this difference at various milestones:
| Time Period | Total Contributed | Roth IRA (Tax-Free) | Taxable Account (After 15% Capital Gains) | Tax-Free Advantage |
|---|---|---|---|---|
| 10 Years | $60,000 | $91,473 | $86,752 | $4,721 |
| 20 Years | $120,000 | $294,510 | $267,834 | $26,676 |
| 30 Years | $180,000 | $745,180 | $659,778 | $85,402 |
After 30 years of investing $500 per month, the Roth IRA holder keeps approximately $85,402 more than the taxable account investor — purely because of the tax-free growth advantage. This gap widens even further with higher returns, larger contributions, or longer time horizons.
The advantage becomes even more dramatic when you consider that taxable accounts also generate annual tax drag from dividend distributions and capital gains distributions within mutual funds. In a Roth IRA, dividends are reinvested without any tax consequences, allowing the full power of retirement compounding to work uninterrupted over decades.
This is why financial planners consistently recommend maximizing Roth IRA contributions, especially for younger investors with long time horizons. The earlier you start making regular contributions, the larger the tax-free advantage becomes through the exponential nature of compound growth. For detailed rules on qualified distributions and the five-year rule, refer to the IRS Roth IRA Distribution Rules.