# How to Calculate the Annual Percentage Yield on an IRA

By: Craig Woodman | Updated October 31, 2018

While loans have an annual percentage rate, investment accounts, such as individual retirement accounts, use an annual percentage yield when determining how your investments are performing. Your annualized rate of return (APY) is the rate of return on your investments adjusted for a one-year period, to allow for easy comparison of various investments over the same time period or the same investment over various time periods. With some basic facts about your IRA, you can calculate the APY for the account on your own.

## APY Definition and Calculation

The APY is a standard measure of the rate of return of an investment over a particular time period. It can be used to compare various investments' performance over time.

You must know the total dollar gain on your IRA for the time frame that you wish to calculate the APY. Gather your statements for your account over the period of time that you wish to calculate the APY. Total any deposits you have made to the account and subtract them, plus the beginning balance, from the ending balance of the account. This is the total amount you have gained in your IRA.

A critical part of the calculation for APY involves the time period over which you are reviewing your IRA. You will adjust the calculation of your gains to reflect the amount of increase over a one-year period. You will need the amount of time that you are reviewing in your IRA in days, based on a 365-day year. For example, if you are looking at the time period from Jan. 1, through March 31 in a non-leap year, the total number of days is 90. It is easier to calculate APY if you consider the gains over full-year periods.

The exact formula for APY calculation is as follows:

APY = 100 [(1 + Interest/Principal) raised to the power of (365/Days in term) – 1

If you are calculating for a one-year period, the formula is much simpler:

APY = 100 (Interest/Principal)

In these formulas, interest is the gain on the account over the time period you are looking at, and the principal is the amount that you have contributed to the account.

While the formulas look complicated, the actual calculation is not too difficult. For example, assume you are looking at an account over 300 days. If you invested \$5,000 in the account, and the account is now worth \$5,500, you have a gain of \$500. The first part of the formula is to add 1 to the result of \$500 divided by \$5,000, for a total of 1.1. The second part is to divide 365 by 300, with 1.2166 the result. Raise the result of the first calculation to the power of the second, resulting in 1.1229. Subtract 1 from this number, and multiply by 100, to arrive at your APY of 12.29 percent.

## IRA Rate of Return Calculator

If you'd prefer not to do the calculations yourself, you can find plenty of online APY calculator tools that may be able to help. Many are offered by banks, brokerages and online financial news and information sources.

Some fund managers may also send you APY information about your investments or you may be able to ask your bank or brokerage for help making this calculation.

## 2018 Tax Law Changes

Nothing about the 2018 tax law changes directly affects how you calculate APY, but it may affect how you value some investments or decide what investments to put in traditional or Roth IRAs. That's because tax rates are generally lower for ordinary income, and some deductions are changing as well, which may affect the tax consequences of different investment strategies.

## 2017 Tax Law

Conversely, tax rates were generally higher in 2017, which may have affected some people's investment choices.

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