Who is eligible
| Traditional IRA | Roth IRA |
|---|---|
| Any person with earned income who is under
70-1/2. A nonworking spouse under age 70-1/2 who files a joint return that includes earned income. |
Single filer
with modified adjusted gross income (MAGI) of:
Joint filers with MAGI of:
Married, filing separately with MAGI of:
|
Maximum annual contribution
| Traditional IRA | Roth IRA |
|---|---|
| The total contribution to all your IRAs is $4,000. If you’re age 50 or older, you can make an additional contribution of $1,000, for a total of $5,000. | Same as traditional IRA, subject to phase-out range depending on modified adjusted gross income (MAGI) as explained above. |
Deductible contributions
| Traditional IRA | Roth IRA |
|---|---|
Single filer,
retirement plan participant with
modified adjusted gross income (MAGI) of:
Single filer, no retirement plan participation:
Joint filer, retirement plan participant with MAGI of:
Joint filer, no retirement plan participation (but spouse is participant) with MAGI of:
|
None of the contribution is tax-deductible. |
Tax credit for contributions
| Traditional IRA | Roth IRA |
|---|---|
| Eligible taxpayers can claim a nonrefundable tax
credit for contributions. The maximum credit allowed is 50% of the annual contribution amount up to $2,000. Joint filers with an adjusted gross income (AGI) of $52,000 or less, heads of household with an AGI of $39,000 or less and single filers with an AGI of $26,000 or less qualify for the credit. |
Same as traditional IRA. |
Federal income-tax treatment on contributions
| Traditional IRA | Roth IRA |
|---|---|
| Taxes are deferred until distributions are made;
taxable distributions are treated as ordinary
income. If nondeductible contributions have been made, each withdrawal is taxed proportionately. |
Contributions are made with after-tax money; therefore, withdrawals from the contribution amount (basis amount) are always tax-free. |
Federal income-tax treatment on earnings
| Traditional IRA | Roth IRA |
|---|---|
| Earnings grow tax-deferred until distributions begin. Distributions are taxed as ordinary income. | Qualified
distributions are tax-free. Nonqualified distributions: earnings are taxed as ordinary income. Conversions: earnings are tax-free after the conversion amount satisfies the five-year investment period. |
Conversions
| Traditional IRA | Roth IRA |
|---|---|
| Conversion to a Roth IRA*: allowed, if modified adjusted gross income (MAGI) is $100,000 or less (single or joint) and, if married, taxpayers file jointly. The converted amount is taxed as income, but no penalty applies. | Recharacterizations: a Roth conversion can be undone (recharacterized) for any reason, including if investors’ income for the tax year in which they converted exceeds the $100,000 MAGI limit. Investors have until their tax filing deadlines (including extensions) of the year they converted to a Roth IRA to undo their conversions. |
*Beginning with the 2010 tax year, a new tax law allows investors with MAGIs greater than $100,000 to also convert to a Roth IRA. Investors who convert in 2010 only can spread their tax payment over two years by including half the conversion amount as income in 2011 and the other half in 2012.
Rollovers
| Traditional IRA* | Roth IRA*† |
|---|---|
| To
employer-sponsored plans: pretax
contributions can be rolled over to a 401(k) or to
another qualified plan, as well as to 403(b) and
457(b) plans. However, the receiving plan must
accept IRA rollovers. From employer-sponsored plans: eligible pretax and after-tax distributions from qualified plans, as well as from 403(b) and 457(b) plans, can be rolled over. |
From/to another
Roth IRA: allowed. From employer-sponsored plans: eligible Roth contributions and earnings from qualified plans, as well as from 403(b) plans, can be rolled over. |
*Beginning in 2007, non-spouse beneficiaries, if allowed by the plan’s terms, may transfer employer-sponsored retirement plan account balances to “inherited IRAs.” (Spouse beneficiaries already have this right.) Because some plans pay death distributions immediately, such transfers could provide a tax benefit. Distributions from an inherited IRA -- along with taxes on the distributions -- can be spread out over time.
†Beginning in 2008, participants who leave an employer may roll their employer-sponsored retirement plan account balances directly into a Roth IRA if their modified adjusted gross income (MAGI) is $100,000 or less. Government 457 plan and 403(b) accounts can also be rolled into a Roth IRA. The MAGI limit will be eliminated in 2010.
Distributions
| Traditional IRA | Roth IRA |
|---|---|
| Distributions from contributions and earnings
can be taken after age 59-1/2 without penalty. Mandatory withdrawals must begin at age 70-1/2. Premature distributions are subject to a 10% penalty tax unless you qualify for the following exceptions:
Distributions to your beneficiaries are also exempt from the 10% penalty. |
Distributions from contributions can be
made any time without taxes or penalty. Distributions from earnings are tax-free if your initial contribution to the account was made at least five years ago and:
Payments made to your beneficiaries after the five-year period are also tax and penalty free. Payments made before the end of the five-year period are penalty free. Distributions from earnings are not subject to the 10% penalty as long as you qualify for an exception:
Distributions from a conversion amount must satisfy a five-year investment period to avoid the 10% penalty. This pertains only to the conversion amount that was treated as income for tax purposes. |
Required minimum distributions (RMDs)
| Traditional IRA* | Roth IRA |
|---|---|
| Must begin no later than April 1 of the year
following the year the taxpayer turns
70-1/2. May be taken in
a lump sum or annual payments. (Learn about
the rules for RMDs.) All IRA balances are aggregated, but the withdrawals may be taken from only one. However, the contributions/earnings are taxed pro rata. |
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