Comparison of the Roth IRA and Traditional IRA

  Roth IRA Traditional IRA
Is there an annual contribution limit?
  • Yes, up to $5,000 per person to all IRAs combined per year
  • Additional $1,000 for individuals who attain age 50 before the end of the tax year
  • Yes, up to $5,000 per person to all IRAs combined per year.
  • Additional $1,000 for individuals who attain age 50 before the end of the tax year
Is there an age limit to make a contribution?
  • No
  • Cannot make contributions past age 70 ½
Are there income limits on the ability to make nondeductible contributions?
  • Yes - the ability to contribute phases out between $105,000 and $120,000 Modified Adjusted Gross Income (MAGI) for single filers and between $167,000 and $177,000 MAGI for joint filers
  • No
Are contributions deductible?*
  • No, all contributions are nondeductible, after-tax contributions

Yes, for nonparticipants in an employer plan

For others, contributions may be deductible depending on income levels:

  • A non-working individual whose spouse is an active participant in an employer-sponsored plan can make deductible contributions, phasing out for a Modified Adjusted Gross Income (MAGI) of between $167,000 and $177,000
  • Deductible contributions for individuals participating in an employer-sponsored plan phase out between a MAGI of $89,000 and $109,000 for married couples filing jointly; the phase-out for singles is between a MAGI of $56,000 and $66,000
Are there minimum distribution requirements?
  • No
  • Distribution must begin by April 1 of year
    following attainment of age 70 ½ and each year thereafter
How are withdrawals taxed after age 59½?*
  • Withdrawals are tax free if account held five years
  • Contributions are withdrawn tax free at any time
  • Withdrawals are subject to tax except for  pro rata share of nondeductible contributions
How are withdrawals taxed before age 59½?*

Contributions are withdrawn tax free

Withdrawals of earnings from accounts held 5 years are tax free in the case of:

  • Death
  • Disability
  • "First” home purchase (up to $10,000)

Withdrawals of earnings are subject to tax but no penalty in the case of:

  • Life annuity
  • Educational expenses
  • Medical expenses
  • Health insurance for unemployed

All other withdrawals of earnings are subject to tax plus 10% penalty

Withdrawals are subject to tax and a 10% penalty is added except in the case of:

  • Death
  • Disability
  • "First” home purchase (up to $10,000)
  • Life annuity
  • Educational expenses
  • Medical expenses
  • Health insurance for unemployed
Can I convert my IRA?
  • An account set up as a Roth IRA cannot be converted to a traditional IRA
  • In 2010, most taxpayers will be able to convert to a Roth IRA regardless of income or tax filing status. (In 2009 it was restricted to individuals with a MAGI of less than $100,000.)

Interested in learning more?

Disclosures:

  • Consult your tax advisor for advice.
  • Limits apply for 2010 and are subject to change in the future.
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