1. What is the Compound Interest Formula?

The compound interest formula calculates how an investment grows over time when earnings are reinvested. For IRAs, this shows how your retirement savings can potentially increase through the power of compounding.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( Principal \) — Initial investment amount
• \( Rate \) — Annual interest rate (as decimal)
• \( Years \) — Number of years invested
• \( FV \) — Future value of the investment

Explanation: The formula accounts for exponential growth as each year's interest earns additional interest in subsequent years.

3. Importance of IRA Growth Calculation

Details: Understanding potential growth helps with retirement planning, contribution decisions, and assessing whether you're on track to meet your financial goals.

4. Using the Calculator

Tips: Enter the initial investment amount in dollars, annual interest rate as a percentage (e.g., 5 for 5%), and the number of years you plan to invest. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this account for regular contributions?
A: No, this calculates growth on a single lump sum. For recurring contributions, use a future value of annuity calculator.

Q2: Are IRA earnings taxed?
A: Traditional IRA earnings are tax-deferred, while Roth IRA earnings are tax-free if conditions are met.

Q3: What's a realistic rate of return?
A: Historically, stock market returns average 7-10% annually, but your actual rate may vary.

Q4: Does this account for inflation?
A: No, the result is in nominal dollars. For real value, subtract expected inflation from your rate.

Q5: How often is interest compounded here?
A: This assumes annual compounding. More frequent compounding would yield slightly higher returns.