| |
Traditional IRA |
Roth IRA |
| Primary benefits |
The earnings are tax-deferred until withdrawn and for many taxpayers, the contributions made are tax deductible. |
All qualified distributions (defined as withdrawals allowed from the plan without penalty) are tax-free. |
| Income limits for contributions |
Yes, if actively participating in an employer-sponsored retirement plan. |
The maximum income limits for Roth IRA contributions is $167,000 in 2010 for married couples filing jointly, and $105,000 for singles. |
| Contribution limits |
$5,000 per calendar year
|
Same |
| Catch-up contributions |
Additional $1,000 if 50 years of age by end of the tax year |
Same |
| Tax advantages |
All IRAs are tax deferred. You do not owe taxes on any earnings until you make a withdrawal. If you qualify, you may be able to deduct your contributions to a traditional IRA on your federal income tax return, depending on tax-filing and active-participant statuses, as well as income amount.
Earnings grow on a tax-deferred basis. Earnings are added to taxable income for the year distributed.
|
Contributions to a Roth IRA are not tax deductible. Earnings grow tax deferred. A Qualified Distribution from a Roth IRA is tax-free.
Earnings are tax-free if you have had an account for five years and one of the following applies:
After age 59½
Death
Disability
First-time home purchase (up to $10,000)
|
| Age for required distributions |
Mandatory distributions must begin by April 1 following the year you reach age 70½. Beneficiaries are also subject to this rule. |
No. Distributions are not required during your lifetime. Distributions may be taken at any time. |
| Withdrawal penalties |
There is a 10% penalty on withdrawals prior to age 59½ except for withdrawals due to:
Death
Disability
Pre-59½ periodic payments
Qualifying medical expenses
Health insurance premiums while unemployed
Withdrawals up to $10,000 toward the purchase of a first home
Conversion to a Roth IRA
Higher-education expenses
The portion of a withdrawal that is the return of nondeductible contributions is not subject to penalty.
|
There is a 10% penalty applied to the earnings portions prior to age 59 1/2 except for withdrawals due to:
Death
Disability
Pre-59½ periodic payments
Qualifying medical expenses
Health insurance premiums while unemployed
Withdrawals up to $10,000 toward the purchase of a first home
Higher-education expenses
Withdrawals of after-tax contributions are not subject to penalty.
|
| Conversion options
|
A traditional IRA can be converted to a Roth IRA if your income is within IRS limits
The amount converted is included in taxable income for the year.
|
A Roth IRA cannot be converted into any other kind of IRA. |
