Traditional IRA vs Roth IRA
Q: When must required distributions begin?
Traditional IRA
At age 73
Roth IRA
Not required
Q: When can withdrawals be taken without penalty?
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- Regular contributions can be withdrawn tax and penalty free anytime
- Earnings can be withdrawn penalty free for any of the following qualified reasons: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
Q: What are the tax advantages?
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- Earnings compound tax-deferred until withdrawn, usually out-earning taxable non-IRA investments. Earnings are then taxed when withdrawn, usually at a lower tax rate.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- Regular contributions can be withdrawn tax and penalty free anytime
- Earnings are tax free if account is open for five years and withdrawn for one of the following qualified reasons: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 73
Q: Who can contribute?
Traditional IRA
- Anyone under age 73 for the entire tax year with earned income from compensation
- Maximum contributions $6,500 annually for tax year 2023
- “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 $138,000
- Married couples filing a Joint Tax Return with MAGI* up to $218,000
- Reduced contributions are allowed for up to $228,000 for single filers and up to $153,000 for joint filers
- May make contributions after age 73 but cannot exceed compensation
- Maximum contributions $6,500 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.
