Winter 2010 | Volume 108 | Number 654
An IRA Comparison
| Traditional IRA | Roth IRA | |
|---|---|---|
| Who can contribute | Anyone younger than 70½ with earned income | A person of any age with earned income who has a modified adjusted gross income of under $120,000 for 2009 (single filers or heads of households); filing jointly, the cap is $176,000 for 2009, $177,000 for 20101 |
| How much can you put in? | Lesser of 100% of compensation or $5,000 if under age 50 ($6,000 if age 50 or older) for 2009 and 2010 | Lesser of 100% of compensation or $5,000 if under age 50 ($6,000 if age 50 or older) for 2009 and 2010 |
| Can you transfer in funds from other types of plans? | Yes, from pensions, profit sharing, 401(k)s, 403(b)s and other traditional IRAs (you need to qualify for a distribution from the employer plans) | Yes, from traditional, SEP and SIMPLE IRAs, and qualified retirement plans, as a conversion; from Roth IRAs as a transfer; or from Roth 403(b)s and Roth 401(k)s as a rollover (you need to qualify for a distribution from the employer plans) |
| Tax advantages? Potential deductions for contributions? | Potential deductions for contributions; tax-deferred growth | Tax-deferred growth; potential for tax-free withdrawals2 |
| Early access to funds? | Yes; may be penalty-free if certain exceptions are met3 | Yes; may be both tax- and penalty-free if certain conditions and exceptions are met3 |
| Age for required distributions? | 70½ | None during owner's lifetime |
1 If you are a married taxpayer who files separately from your spouse, consult your tax advisor. If your modified adjusted gross income falls between $105,000 and $120,000 and you're a single filer or head of household, or between $166,000 and $176,000 ($167,000 and $177,000 for 2010) and filing jointly, the contribution amount will be reduced.
2 Please consult with your tax advisor on when you can take income tax-free withdrawals from your Roth IRA.
3 Traditional and Roth IRAs allow penalty-free withdrawals if investors die or become disabled; traditional IRAs also allow exemptions for those who lose their jobs and need to buy health insurance, or need to pay unreimbursed medical expenses in excess of 7.5% of their adjusted gross income. Penalty-free withdrawals for educational expenses (traditional IRAs) and up to $10,000 toward the purchase of a first home (Roth and traditional IRAs) are also allowed. Still, Roth IRAs need to be at least five years old for investors to make penalty-free early withdrawals for first-time house purchases.
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