Data source and methodology
AuthoritativeDataSource: Internal Revenue Service (IRS) — Publication 590-A: Contributions to Individual Retirement Arrangements (What’s New for 2025), IRS “Retirement Topics — IRA contribution limits,” IRS News Release IR-2024-285 on 2025 contribution COLAs. All calculations strictly follow the formulas and data from these sources.
- 2025 IRA contribution limits: $7,000 (under 50), $8,000 (age 50+), capped by compensation.
- Traditional IRA deduction MAGI phase-outs (2025):
- If covered by a plan: Single/HOH: $79k–$89k; MFJ/QSS: $126k–$146k; MFS: <$10k partial.
- If not covered but spouse is: MFJ phase-out: $236k–$246k; MFS: <$10k partial.
- If neither covered: deduction generally allowed regardless of MAGI (subject to compensation cap).
- RMD age: 73 (SECURE 2.0).
The formulas, explained
1) Annual contribution cap
\[ C_{\max} = \min\big(C_{\text{desired}},\ C_{\text{IRS}},\ \text{Compensation}\big),\quad C_{\text{IRS}} = \begin{cases} 8000 & \text{if age} \ge 50 \\[4pt] 7000 & \text{if age} < 50 \end{cases} \]
2) Deduction phase-out (linear)
\[ D = \begin{cases} C_{\max} & \text{if MAGI} \le L \\[4pt] 0 & \text{if MAGI} \ge U \\[4pt] C_{\max}\cdot\Big(1 - \dfrac{\text{MAGI}-L}{U-L}\Big) & \text{if } L < \text{MAGI} < U \end{cases} \] where \(L,U\) depend on filing status and coverage (2025 IRS ranges).
3) Future value of level annual contributions
\[ FV = C_{\max}\cdot \frac{(1+r)^{n}-1}{r} \] with \(r\) = expected annual return and \(n\) = years of contributions.
4) After-tax value at retirement
\[ \text{AfterTax} = FV - t_{\text{ret}}\cdot\big(FV - \text{Basis}\big) \] where \(\text{Basis} = n\cdot(C_{\max}-D)\) is total nondeductible contributions and \(t_{\text{ret}}\) is the retirement tax rate.
Glossary of variables
- MAGI: Modified Adjusted Gross Income defined in IRS Pub 590-A for IRA purposes.
- Coverage: Whether you/spouse are active participants in a workplace retirement plan.
- Deductible amount (D): Portion of your contribution you can deduct this year.
- Basis: Cumulative nondeductible contributions tracked on Form 8606; returned tax-free.
- FV: Future value of contributions at expected return \(r\) over \(n\) years.
How it works: a step-by-step example
Scenario: Single filer, age 35, MAGI $90,000, covered by a plan; contributes $7,000 for 30 years at 6% expected return. Current marginal rate 24%, retirement rate 22%.
- IRS cap \(C_{\text{IRS}}= \$7{,}000\); compensation is sufficient → \(C_{\max} = \$7{,}000\).
- Single covered phase-out is $79k–$89k MAGI. At $90k ≥ 89k → deduction \(D=0\).
- FV \(= 7000 \cdot \frac{(1.06)^{30}-1}{0.06} \approx \$551{,}000\) (rounded).
- Basis \(= 30 \times 7000 = \$210{,}000\). After-tax \(= FV - 0.22\cdot(FV-210{,}000)\).
Frequently asked questions
What if neither spouse is covered by a workplace plan?
Deduction is generally allowed regardless of MAGI (subject to the annual limit and compensation).
I file MFS—why is the deduction so limited?
MFS has a very narrow phase-out (MAGI <$10k partial) to prevent gaming across spouses. If you lived apart all year, you’re treated as Single for this purpose.
Does the calculator model COLA changes to limits?
This version fixes 2025 limits. You can re-run for future years as IRS updates occur.
How are nondeductible contributions treated at withdrawal?
Your total nondeductible basis is returned tax-free. Growth is taxable. We estimate after-tax value as FV minus tax on the pre-tax portion (FV − basis).
When do RMDs start?
At age 73 under current law (SECURE 2.0). This tool doesn’t model RMD timing.
Can I still do a backdoor Roth?
Backdoor Roth involves a nondeductible Traditional IRA contribution and conversion; consult a tax professional about pro-rata rules.
Tool developed by Ugo Candido. Content reviewed by the CalcDomain Editorial Board.
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