A wise person once said that humans tend to over-estimate what they can
accomplish in the short-term and under-estimate what they can accomplish in
the long-term. This holds very true for IRA contributions.
IRAs offer a number of benefits:
- Regular savings
- Potential tax-deductible contributions (depending on income levels and
other retirement plan participation)
- Tax-deferred compounding
- Potential tax-free distributions (in the case of Roth IRAs)
It can be easy to put off or fail to make contributions to an IRA.
Retirement may seem like a long way off and $4000 may not sound like a lot of
money to save. But look at how these contributions can accumulate.
Year |
Total Contributions |
IRA Value at 6% earnings |
IRA value at 8% earnings |
IRA value at 10% earnings |
1 |
$4,000 |
$4,000 |
$4,000 |
$4,000 |
2 |
$8,000 |
$8,240 |
$8,320 |
$8,400 |
3 |
$12,000 |
$12,734 |
$12,986 |
$13,240 |
4 |
$16,000 |
$17,498 |
$18,024 |
$18,564 |
5 |
$20,000 |
$22,548 |
$23,466 |
$24,420 |
6 |
$24,000 |
$27,901 |
$29,344 |
$30,862 |
7 |
$28,000 |
$33,575 |
$35,691 |
$37,949 |
8 |
$32,000 |
$39,590 |
$42,547 |
$45,744 |
9 |
$36,000 |
$45,965 |
$49,950 |
$54,318 |
10 |
$40,000 |
$52,723 |
$57,946 |
$63,750 |
15 |
$60,000 |
$93,104 |
$108,608 |
$127,090 |
20 |
$80,000 |
$147,142 |
$183,048 |
$229,100 |
30 |
$120,000 |
$316,233 |
$453,133 |
$657,976 |
Taxes Due – 28% tax
rate |
|
- $54,945 |
- $93,277 |
- $150,633 |
Net After Taxes |
|
$261,288 |
$359,856 |
$507,343 |
No one can accurately predict what level of earnings you may earn on your
investments. It may be difficult to foresee what the future tax laws will be.
However, using IRAs as part of your retirement planning strategy can help you
have the type of financially secure retirement you desire.
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