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Roth IRA vs. Traditional IRA

The two most common types of IRAs are the traditional IRA and Roth IRA.


Traditional IRA
Your contributions to a traditional IRA enjoy tax-advantaged growth potential. You do not have to pay taxes on your traditional IRA assets until you withdraw the amounts.1 You may be able to make tax-deductible contributions to a traditional IRA. The deductibility is subject to limitations based on your eligibility to participate in an employer-sponsored retirement plan, your income, and your filing status. You cannot contribute to a traditional IRA if you are over age 70½.


Roth IRA
You cannot deduct any contributions made to a Roth IRA. Contributions to a Roth IRA are always made with after-tax dollars and are subject to income limitations. Your contributions to a Roth IRA enjoy tax-advantaged growth potential. You also may take distributions from a Roth IRA account tax-free if you've been invested in the Roth IRA for a minimum of five years and if a distribution is made after the date you reach age 59½, or because you are disabled, or if it's made to a beneficiary or to your estate after your death. There are no required minimum distributions if you are the owner of a Roth IRA.


How are a traditional IRA and a Roth IRA different?

 

Question Traditional IRA Roth IRA
Is there an age limit on when I can set up the IRA and contribute? Yes. You must not have reached age 70½ by the end of the year. No. You can be any age.
Can I deduct contributions? Yes. You may be able to deduct your contributions to a traditional IRA depending on your income, your filing status, whether you are covered by a retirement plan at work, and whether you receive Social Security benefits. No. You can never deduct contributions to a Roth IRA.
Do I have to start taking distributions when I reach a certain age? Yes. You must begin receiving required minimum distributions by April 1 of the year following the year you reach age 70½. No. If you are the original owner of a Roth IRA, you do not have to take distributions regardless of your age.
What are the tax advantages? Tax-deferred growth potential. Tax-free growth potential. No required minimum distributions.
Are distributions from my account taxable? Distributions are taxed as ordinary income, but if you made nondeductible contributions, not all of the distribution is taxable. A 10% early withdrawal penalty may apply to withdrawals made prior to age 59½.

Distributions are not taxed as long as certain requirements are met: (1) You must have been invested in the Roth IRA for a minimum of five years, and (2) A distribution is made either:

• After the date you reach age 59½, or

• Because you are disabled, or

• To a beneficiary or to your estate after your death, or

• Because you are using the distribution for a first-time home purchase (subject to limitations).

If a distribution does not meet the requirements listed above, the portion of the distribution attributable to earnings may be subject to ordinary income tax and may be subject to the 10% early withdrawal penalty.

Can I take a loan? No. No.
Is there an upper income limit on how much I can earn and still contribute? No. Yes. The income limits are based on your modified adjusted gross income. You cannot contribute to a Roth IRA if your 2015 income is more than $131,000 for single and head of household filers and $193,000 for joint filers.
What are the contribution limits for 2015?
  • $5,500 if you are under age 50.
  • Age 50+ can contribute up to $6,500 in 2015.
  • $5,500 if you are under age 50.
  • Age 50+ can contribute up to $6,500 in 2015.
Is my account subject to Required Minimum Distribution rules? Yes. No, for a Roth IRA owner.

Source: IRS Publication 590


You may contribute to both a traditional IRA and a Roth IRA in the same year. However, the total of your contributions in 2015 to a Roth IRA and a traditional IRA may not exceed $5,500 if you are under 50 years old and $6,500 if you are age 50 or older. Also, your contribution limit to a traditional IRA will be reduced by the contributions made to a Roth IRA. For more information, see IRS Publication 590.

 

Open an IRA – Empower Retirement IRA

 

Converting to a Roth IRA

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Please consult with your financial advisor, call (877) 804-6257 to speak to a retirement consultant, or
email us at RetirementSolutionsCenter@empower-retirement.com.


1Withdrawals are subject to ordinary income tax. A 10% early withdrawal penalty may apply to withdrawals made prior to age 59½.

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