Traditional |
Roth |
|
Age Eligibility |
Anyone under age 70½ | Any age |
Income Eligibility |
Must have earned income |
For full contribution, must have adjusted gross income (AGI) below (indexed for the current year)
|
Current Annual Contribution Limits |
$5,500 maximum; may be fully or partially deductible, depending on eligibility for employer retirement plan and current income guidelines | $5,500 maximum, not tax deductible |
Current Tax Advantages |
Taxes on any potential gains, dividends and interest are deferred until money is withdrawn | Tax-deferred growth and tax-free qualified withdrawals |
Deductibility of Contributions |
Fully deductible if not covered by employer-sponsored retirement plan and spouse is not covered by plan or whose AGI is below:
|
None |
Taxation on Withdrawals |
Withdrawals are taxed as ordinary income (except those representing nondeductible contributions) |
Withdrawals of contributions are tax-free at any time. Withdrawal of earnings are tax-free if they are taken after five years and meet any of the following criteria2:
|
Penalties on Withdrawals |
Withdrawals taken prior to age 59 ½ are subject to a 10% IRS-imposed penalty unless one of several conditions is met:
|
Withdrawals of earnings which do not meet the five-year exception are subject to a 10% IRS imposed penalty, unless one of several conditions is met:
|
Distribution Rules |
Must begin withdrawing by age 70 ½ | None |
IRA Catch-Up Contributions |
Individuals age 50 and over will be permitted to make up to $1,000 in annual catch-up contributions. | Individuals age 50 and over will be permitted to make up to $1,000 in annual catch-up contributions. |
Why is an IRA a good deal?
Because money in your account grows tax free. That is, the income from interest, dividends and capital gains can compound each year without taxes decreasing your balance. You can also escape taxes on the money you withdraw in retirement depending upon whether you choose a Traditional or Roth IRA.