The Wealth-Building Power of a Roth IRA
When it comes to retirement planning, few savings vehicles are as popular or powerful as the Roth IRA. By allowing your investments to grow completely sheltered from taxes, and guaranteeing that every dollar you withdraw in retirement is 100% tax-free, the Roth IRA is the ultimate tool for building long-term wealth.
Because of these lucrative tax advantages, the IRS restricts direct contributions to individuals under specific income thresholds. This calculator maps your Modified Adjusted Gross Income (MAGI) against current IRS ranges and projects your compound growth.
Standard Roth IRA Income Limits
Your filing status and Modified Adjusted Gross Income (MAGI) dictate whether you can contribute directly to a Roth IRA:
- Single filers: Full contribution allowed for MAGI under $150,000. Partial phase-out occurs between $150,000 and $165,000. No direct contributions are permitted above $165,000.
- Married Filing Jointly: Full contribution allowed for MAGI under $236,000. Phase-out occurs between $236,000 and $246,000. No direct contributions are allowed above $246,000.
- Married Filing Separately: A highly punitive phase-out occurs between $0 and $10,000, making direct contributions virtually impossible for most married filers living together.
The Magic of Tax-Free Compounding
In a taxable brokerage account, you are subject to drag from taxes on dividends and realized capital gains every year. Inside a Roth IRA, this drag is completely eliminated. Every dollar earned in dividend yields or capital gains is fully reinvested, allowing your money to compound on a larger base.
For example, contributing $7,500 annually ($625/month) at an 8% annual return yields over **$355,000** in 20 years. Because this is a Roth IRA, that entire amount is yours to spend in retirement — with zero tax liabilities.
