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Traditional IRA vs Roth IRA

Traditional IRA vs Roth IRA

Traditional IRA vs Roth IRA

Traditional IRA
At age 70 1/2
 
Roth IRA
Not required

Traditional IRA

Withdraw penalty free without incurring 10% IRS premature-distribution penalty:

  • Upon reaching age 59 1/2
  • Qualified educational expenses
  • First time home purchase (lifetime maximum of $10,000 per individual)
  • Disability
  • Catastrophic medical expenses
  • Payment to beneficiaries upon the owner’s death
  • Payment of health insurance premiums while unemployed for 12 weeks or longer
  • Withdrawal of earnings and deductible contributions still results in taxable income.

Roth IRA

  • Regular contributions can be withdrawn tax and penalty free anytime
  • Earnings can be withdrawn penalty free for any of the following qualified reasons:
    • Age 59 1/2
    • Disability
    • Death
    • For first time home purchase (lifetime maximum of $10,000 per owner)
    • Education Expenses
    • Large medical expense and health insurance premium while unemployed

Traditional IRA

  • A married person who is not an active participant in a retirement plan, but whose spouse is an active participant will be eligible for a fully deductible contribution to a Traditional IRA if MAGI* is under $150,000
  • Earnings compound tax-deferred until withdrawn, usually out-earning taxable non-IRA investments. Earnings are then taxed when withdrawn, usually at a lower tax rate.
  • Contributions may be tax deductible if certain requirements are met.

Roth IRA

  • Regular contributions can be withdrawn tax and penalty free anytime
  • Earnings are tax free if account is open for five years and withdrawn for one of the following qualified reasons:
    • Death
    • Disability
    • Age 59 1/2
    • First time home purchase
    • Not required to start withdrawals at age 70 1/2

Traditional IRA

  • Anyone under age 70 1/2 for the entire tax year with earned income from compensation
  • Maximum contributions $5,000 annually for tax year 2008 – 2010
  • “Catch-up” Contributions: Individuals age 50 and older who have earned compensation will be permitted to make additional “catch-up” contributions to Traditional and Roth IRAs. The maximum “catch-up” contribution is $1000 for tax year.

Roth IRA

  • Anyone filing a Single Tax Return with MAGI* up to $95,000
  • Married couples filing a Joint Tax Return with MAGI* up to $150,000
  • Reduced contributions are allowed for up to $110,000 for single filers and up to $160,000 for joint filers
  • May make contributions after age 70 1/2 but cannot exceed compensation
  • Maximum contributions $5,000 annually
  • “Catch-up” Contributions: Individuals age 50 and older who have earned compensation will be permitted to make additional “catch-up” contributions to Traditional and Roth IRAs. The maximum “catch-up” contribution is $1000 for tax year.

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* MAGI = Modified Adjusted Gross Income from federal tax return. Please consult your tax advisor for additional tax information.