Roth vs Traditional IRA Information to Help You Decide Which is Right for You
Roth IRA:
No immediate tax breaks, but contributions grow tax-deferred and can be taken out tax-free. A smart solution, especially if you expect a higher income and tax bracket in the future.
Traditional IRA:
You may receive tax breaks today depending on your situation. Contributions grow tax-deferred yet are taxed when you take money out in retirement. A smart solution because your savings benefit from tax-deferred compounding.
| Compare At A Glance | Traditional IRA | Roth IRA |
| Description | ||
| Government savings plan that offers tax advantages for individuals to set aside money for retirement. Contributions are made with pre-tax dollars. | Govermnent savings plan that offers tax advantages for individuals to set aside money for retirement. Contributions are made with after-tax dollars.. | |
| Tax Advantages | ||
| Account balances compound tax-deferred until funds are withdrawn. | Account balances compound tax-deferred. BUT funds that are withdrawn are tax-free if account is five years old and account owner is over 59½. | |
| Maximum Contributions | ||
| 100% of earned income, up to $5,000. Plus an additional $1,000, if age 50+. Total of $10,000 for married couples. (Contribution limits are reduced by any contributions made to a Roth IRA.) | 100% of earned income, up to $5,000. Plus an additional $1,000, if age 50+. Total of $10,000 for married couples. (Contribution limits are reduced by any contributions to a Traditional IRA.) | |
| Eligibility | ||
| Individuals must be under 70½ and have earned income. | Individuals must have earned income and adjusted gross income less than $125,000 for singles and $183,000 for married couples. | |
| Tax Deductions on Contributions | ||
| Yes | No | |
| Penalties for Early Withdrawal | ||
| 10% penalty for withdrawals before age 59½. | 10% penalty for withdrawals before 59½. (Note: Roth contributions can be taken out at any time without penalty.) | |
| Exceptions for 10% Penalty | ||
| Yes | Yes | |
| Maximum Age to Begin Contributions | ||
| 70½ | No Limit | |
| Required Distributions | ||
Yes. Minimum withdrawals begin after the age of 70½. |
No | |