KBID 385 Date Created: 4/3/2003 Date Modified: 8/22/2023
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.
For 2023, Individuals can save up to $6,500 through an individual retirement account (IRA)
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)
After age 59½
Death
Disability
First-time home purchase (up to $10,000)
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
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.
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.
The amount converted is included in taxable income for the year.