An Explanation of the Above Columns

End of Tax Year illustrates values as of December 31 of each year.

Age is the customer's age on December 31 of the tax year.

Tax-Deductible Contribution is the amount the customer deposits into his/her Ordinary or Traditional IRA, in this case, $2,000 per year.  Deposits are made on April 15 in the tax year indicated.  Interest is computed daily (see IRA Value below).  We assume all deposits are tax-deductible.  In our view, to write software that compares a non-deductible IRA to a Roth IRA seems moot since neither are tax-deductible, but the Roth IRA has far superior income tax advantages after retirement.

Tax Savings into Side Fund. The Side Fund is a purely hypothetical way of showing the compound interest effect, or opportunity cost, of the income tax differences between an Ordinary IRA vs a Roth IRA. Since your customer gets a tax break when he/she deposits money into an Ordinary IRA, we illustrate the compound effect of this money as if it were set aside into a savings account. You may argue that most people spend their tax savings and that not side fund actually exists. It doesn’t matter. Conceptually, your customer could have earned interest on these income tax savings. In the example above, $560 per year is deposited into the Side Fund each April 15th. This is based on a $2,000 tax deduction in a 28% tax bracket.

Income From IRA starts on the Date Income Begins - Ordinary IRA input field.  A monthly withdrawal amount is calculated that will deplete the fund on the December 31st the customer turns age 90.  The amount shown in this column above, $79,160, is based on a deduction of $6,596.67 deducted from the fund on the first day of each month beginning with January 1, 2017.

Income Taxes distributions from an Ordinary IRA are assumed to be taxed at the rate the user entered into the "Tax Bracket After Retirement" field.  In the example above, starting at age 70, $79,160 times 28% = $22,164.

Side Fund Income is the income the customer would have had if the income tax savings were deposited faithfully in the Side Fund each year.  See Tax Savings into Side Fund, above.

After-Tax Income To-Date. This number is calculated from the columns Income From IRA, minus Income Taxes, plus Side Fund Income. Thus, at age 70 in the example above,  79,160 - 22,164 + 2,027 = 59,023.  This calculation continues year after year and shows the total after-tax income withdrawn to date.

IRA Value is the value on December 31st of the tax year.   Interest is compounded daily.  Check the first year's numbers with your HP 12-C Calculator:

Step 1: Calculate the Interest on the Lump Sum:
n = 1                  (calculate interest for one year)
i = 10                 (10% interest, based on user input, 10% Roth IRA Illustrated Annual Return)
PV = -100,000 (User input, Value of Your Ordinary IRA)
PMT =  0         (not applicable)
Press the FV key to calculate the result, 110,000..

Step 2: Calculate the interest on the $2,000 contribution that was added on April 15th:
i = 0.02612  (1.1 ^ (1 / 365), the daily interest factor for 10% interest. To arrive at this number on your calculator, follow these steps: 1.1 Enter, 1 Enter, 365 Divide, y to the power of x, 1 subtract, 100 times.)
n = 261         (Number of days from April 15th to December 31st)
PV = 2,000   (User input, Annual IRA Contribution)
PMT = 0       (not applicable)
Press the FV key to calculate the result, 2,141.06. Add this to 110,000 to get 112,141 which is the IRA Value in the first year.

Side Fund Value is the value on December 31st of the tax year.

• Interest is compounded daily.  The Side Fund Value is the impact of compound interest has on the tax savings deposited into the Side Fund Side Fund Income as explained above.
• Since IRA deposits are assumed to take place each April 15th, Side Fund deposits also happen on this day.
• The Side Fund is assumed to be a taxable vehicle so a "net" interest rate is used.  For the example above, 10% interest less a 28% tax bracket is a 7.2% "net" interest rate.

Check the first year's account balance with your HP 12-C Calculator:

Calculate the interest on the $560 Side Fund deposit that took place on April 15, 1998:
i = 0.01905  (1.072 ^ (1 / 365), the daily interest factor for 7.2% interest. To arrive at this number on your calculator, follow these steps: 1.072 Enter, 1 Enter, 365 Divide, y to the power of x, 1 subtract, 100 times.)
n = 261         (Number of days from April 15th to December 31st)
PV = 560     (User input, Annual IRA Contribution)
PMT = 0       (not applicable)
Press the FV key to calculate the result, 588.54, which is the Side Value at the end of the first year.

Total Value is the sum of the IRA Value and the Side Fund Value.