Investing in an Individual Retirement Account (IRA) is often recommended not only to provide funds for retirement but also to provide tax benefits. There are two IRA options: the traditional IRA and the Roth IRA. The following table compares the characteristics of these two options.
Traditional IRA and Roth IRA
|
Traditional IRA |
Roth IRA |
| Eligibility |
Any wage-earner or non-working spouse |
Same as Traditional IRA |
| Contribution Time Limits |
Must stop at age 70 ½ |
May continue after age 70 ½ |
| Contribution Dollar Amount Limits |
Lesser of 100% of earned income or applicable dollar amount as follows:
2009: $5,000
2010: $5,000
Note: The contribution dollar amount limits apply to any single IRA or a combination of IRAs |
same as Traditional IRA |
| Tax Benefits |
Tax deferred growth - all interest is tax sheltered until withdrawn.
Contributions deductible depending on marital status and wage income. |
Tax-free growth - contributions not tax deductible but never have to pay tax on interest earned.
May not be eligible if your income is over $120,000 for single filers and $177,000 for joint filers for 2010 ($120,000 for single filers and $176,000 for joint filers for 2009).
|
| Catch-up Contributions for Over Age 50 |
If over age 50, additional amount may be contributed above the applicable contribution as follows:
2009: $1,000
2010: $1,000 |
same as Traditional IRA
|
| Tax Deductibility of Contributions
| a. Fully deductible if married filing jointly and neither is covered by employer retirement plan or single filer and not covered by employer retirement plan.
b. For 2010, deductible if covered by employer retirement plan and AGI for individuals over age 50 is up to $56,000 and AGI for joint filers over age 50 is $89,000.
c. For 2010, For 2010, partially deductible if covered by employer retirement plan and AGI for individuals over age 50 is $56,000 - $66,000 and AGI for joint filers over age 50 is $89,000 - $109,000.
d. For 2010, if spouse is not covered by employer retirement plan, fully deductible if joint AGI is less than $166,000 and partially deductible if AGI is $167,000 - $177,000. |
Contributions are not tax-deductible. |
| Provisions if AGI is Above Limits |
Nondeductible contributions allowed |
Cannot contribute if AGI is above limits |
| Withdrawals |
Possible at age 59 ½ without penalty.
Possible prior to 59 ½ in case of death, disability, or qualified medical expenses.
Pre-tax withdrawals after 59 ½ taxed at ordinary income tax rates
Withdrawals before 59 ½ subject to 10% penalty in addition to ordinary income tax rates. |
May withdraw up to original contribution amount at any time w/o income tax penalty.
Withdrawal of earnings tax-free possible after age 59 ½ and have had account for at least five years.
Withdrawal of earnings before age 59 ½ tax free and penalty-free if account held for five years and are purchasing first home or in case of death or disability |
| Required Minimum Distributions |
Must begin at age 70 ½ |
No minimum distributions required |
