Terms of Use   

IRAs are a great way for you to save for the future.  Your IRA can consist of a range of investments from savings accounts, stocks, bonds, and certificates of deposit or share certificates. You can contribute up to a certain limit each year into your IRA and if you're over 50, you are allowed an additional "catch up" contribution.  The tax advantages of a Traditional or Roth IRA depend on your annual income and whether you are covered by your company's retirement plan.

Below we have provided a table to help you understand some of the differences between a Traditional and Roth IRA.

  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Primary benefits The earnings are tax-deferred until withdrawn and for many taxpayers, the contributions made are tax deductible.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 For 2012 the phaseout range for deducting an IRA contribution when you are covered by a retirement plan at work are as follows:

For single filers: $58,000 to $68,000
For head of household filers: $58,000 to $68,000
For married couples filing jointly: $92,000 to $112,000
For married couples filing separately: $0 to $10,000

For 2013 the phaseout range for deducting an IRA contribution when you are covered by a retirement plan at work are as follows:

For single filers: $59,000 to $69,000
For head of household filers: $59,000 to $69,000
For married couples filing jointly: $95,000 to $115,000
For married couples filing separately: $0 to $10,000		 The Roth contribution limit is gradually reduced or phased out at the following income levels for 2012:

Single and Head of household: $110,000 to $125,000
Married filing joint: $173,000 to $183,000
Married filing separately: $0 to $10,000

And for 2013, the Roth income limits are:

Single and Head of household: $112,000 to $127,000
Married filing joint: $178,000 to $188,000
Married filing separately: $0 to $10,000
Contribution limits

Individuals can save up to $5,500 through an individual retirement account (IRA) for 2013

 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 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

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.