Traditional vs. Roth IRAs

  

Traditional IRA

 

Roth IRA


Who can benefit the most?

 

Traditional IRAs can benefit people who:

  • Think they may be in a lower tax bracket in retirement.
  • Can deduct their contributions from their federal taxes.
  • Earn too much to be eligible to contribute to a Roth IRA.

Traditional IRAs may benefit people who want to prepare for retirement or other long-term financial goals. They have two primary advantages:

  • Tax-deductible contributions
  • Tax-deferred growth
 

Roth IRAs may benefit people who:

  • Think they might be in a higher tax bracket in retirement.
  • Want to leave assets to their heirs.
  • May want to retrieve their original contributions before retirement.
  • Are age 70½ or older and want to keep contributing to an IRA (provided they have earned income equal to the amount of their contribution).

Who is eligible

 

Anyone with earned income who is under age 70½ can make after-tax (nondeductible) contributions to a Traditional IRA.

 

Anyone with earned income who meets the adjusted gross income requirements can make after-tax contributions to a Roth IRA.

Individuals who are age 70½ or older and have earned income are eligible to make a Roth IRA contribution (but would not be eligible to make a Traditional IRA contribution).


How much you can contribute

 
For people under age 50:

For the 2011 and 2012 tax years: Up to $5,000 for each year.

For people age 50 or older:

For the 2011 and 2012 tax years: Up to $6,000 for each year.

 
For people under age 50:

For the 2011 and 2012 tax years:
Up to $5,000 for each year.

For people age 50 or older:

For the 2011 and 2012 tax years:
Up to $6,000 for each year.

  Please call 800 842-2252 to learn more about limits that may apply on tax deductions and contributions, based on someone's adjusted gross income.

When you can make withdrawals

 

Although federal penalties and taxes apply to withdrawals before age 59½, you can take a penalty-free withdrawal at any age to make a qualified first-home purchase ($10,000 withdrawal limit) or to meet qualified higher-education expenses.

Additional exceptions also apply.

 Since you make Roth contributions with after-tax money, you can withdraw your original contributions at any age, free of federal taxes and penalties. If your Roth IRA is in place for at least five years, you can withdraw earnings free of federal taxes after age 59½, or up to $10,000 at any age to make a qualified first-home purchase. Additional exceptions also apply.  
  The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed herein. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

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