Individual Retirement Accounts (IRAs) allow you to save for retirement using tax-deferred or tax-exempt contributions now.
Traditional versus Roth IRA
|Traditional IRA||Roth IRA|
|Am I eligible?||You must have earned income and be under age 70½ in the year the contribution is made.||
No age limit for account opening or contributions.
Account holder must have a modified adjusted gross income (MAGI) less than:
|How much can I contribute each year?||
For 2019 and 2020, your total contributions cannot be more than:
The IRA contribution limit does not apply to:
|What is a "Catch-up Contribution?"||If you are age 50 or older in the year of contribution, eligible IRA account holders can make an additional contribution of $1,000.||If you are age 50 or older in the year of contribution, eligible IRA account holders can make an additional contribution of $1,000.|
|Can I deduct my contribution?||
If you are not an active participant in an employer-sponsored retirement plan, such as a 401(k), your entire contribution is tax deductible.
If you are an active participant in an employer-sponsored retirement plan, your contribution may be completely or partially deductible.
|Contributions are not tax deductible.|
|Is there a deadline for account opening and contributions?||Opening the account and making contributions for a specific year must be made by the tax filing deadline for that year.||Opening an account and making contributions for a specific year must be made by the tax filing deadline for that year.|
|Is there a penalty tax on excess contributions?||Yes, the IRS imposes a 6% penalty tax on excess contributions.||Yes, the IRS imposes a 6% penalty tax on excess contributions.|
|When must I begin taking distributions?||
You may begin taking distributions at 59½ without any penalties.
You must begin taking distributions by April 1 following the year in which you turn 70½.
|There is no mandatory age for taking distributions.|
|Do I pay income taxes on withdrawals?||Yes. Any withdrawals (except non-deductible contributions) are subject to regular income taxes.||Qualified withdrawals of contributions are tax-free. (See below.)|
|Can I make withdrawals prior to 59½?||
Penalty-free withdrawals before age 59½ are allowed if:
You have the ability to withdraw your principal and earnings completely tax-free if the IRA has been open for five or more years and at least one of the following conditions are met:
|Is there a penalty tax on insufficient withdrawals after age 70½?||Yes, failure to take the total required minimum distribution each year may result in a 50% excise tax on the amount not distributed.||Not applicable.|
The advice provided is for informational purposes only. Contact a financial advisor or tax professional for additional guidance.