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Understanding The Differences |
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Traditional IRA |
Roth IRA |
| Who is eligible: |
Individuals under age 701/2 who have earned income.
Income limits appy to deductible IRA's.
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Individuals of any age with Modified Adjusted Gross Income under a certain level.
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| Tax status of earnings: |
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Earnings are taxed as regular income according to your income tax bracket at time of withdrawal.
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Generally, no taxes paid on earnings provided account has been established for at least five years and at least one of the following applies:
- First home purchase ($10,000 limit)
- Death/disability
- Age 591/2 or older
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Your maximum allowable
contributions: |
Individual: Lesser of: 1) 100% of earned income or 2) $3,000 if under age 50 and $3,500 if age 50 or older.
Married: If filing a joint tax return, the lesser of: 1) 100% of combined earned income or 2) $6,000 if under age 50 or $7,000 if age 50 or older.
The maximum amount is offset by any contributions to a Roth IRA.
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Same as Traditional IRA (minus any contribution to a Traditional IRA).
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Tax deductibility of
contributions: |
Fully deductible if not covered by an employer plan or certain earned income criteria are met.
(See IRAs At-A-Glance)
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Contributions are not tax deductible.
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Mandatory distribution
status: |
Distribution must start by 701/2
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No mandatory distribution requirement.
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Modified Adjusted Gross
Income limits: |
To fully deduct the $3,000 maximum contribution:
- Not covered by employer plan.
- If covered by employer plan, less than a certain amount of Modified Adjusted Gross Income.
To partially deduct:
- Covered by an employer plan but meet Modified Adjusted Gross Income criteria.
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To be eligible to contribute the $3,000 maximum:
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Early withdrawal options
(before age 591/2): |
10% early withdrawal penalty waived for:
- Post-secondary education expenses
- First home purchase ($10,000 limit)
- Death/disability
- Certain medical expenses / health insurance premiums during unemployment
- Certain substantially equal annual periodic payments (Taxes are still paid upon withdrawal)
- To satisfy certain IRS tax liens.
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10% early withdrawal penalty waived for:
- Post-secondary education expenses
- First home purchase ($10,000 limit)
- Death/disability
- Certain medical expenses / health insurance premiums during unemployment
- Certain substantially equal annual periodic payments
- To satisfy certain IRS tax liens.
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