COMPARE TRADITIONAL VS. ROTH IRAs

Traditional IRA

Roth IRA

Who can benefit the most?

Traditional IRAs can benefit people who:

• Think they may be in a lower tax bracket in retirement.
• Can deduct their contributions from their federal taxes.
• Earn too much to be eligible to contribute to a Roth IRA.

Traditional IRAs may benefit people who want to prepare for retirement or other long-term financial goals. They have two primary advantages:

• Tax-deductible contributions
• Tax-deferred growth

Roth IRAs may benefit people who:

• Think they might be in a higher tax bracket in retirement.
• Want to leave assets to their heirs.
• May want to retrieve their original contributions before retirement.
• Are age 70½ or older and want to keep contributing to an IRA (provided they have earned income equal to the amount of their contribution).

 Who is eligible

Anyone with earned income who is under age 70½ can make after-tax (non-deductible) contributions to a Traditional IRA.

To qualify for a deduction of your contributions on your federal tax return, you must meet the income requirements described below.

Anyone with earned income who meets the requirements described below can make after-tax contributions to a Roth IRA.

Individuals who are age 70½ or older and have earned income are eligible to make a Roth IRA contribution (but would not be eligible to make a Traditional IRA contribution).

How much you can contribute

For people under age 50:

For the 2008 and 2009 tax years: Up to $5,000.

For people age 50 or older:

For the 2008 and 2009 tax years: Up to $6,000.

Note: You can deduct the full amount of your contribution from your federal taxes if neither you nor your spouse is an active participant in an employer-sponsored retirement plan. For the 2009 tax year, if you are an active participant in an employer-sponsored retirement plan, in order to deduct your full contribution, your modified adjusted gross income (MAGI) in 2009 must be $55,000 or less (for single filers), or $89,000 or less (for joint filers).

You can get a partial deduction for your contribution if:

Your 2009 MAGI is between $55,000 and $65,000 (for single filers).

Your 2009 MAGI is between $89,000 and $109,000 (for joint filers).

If one member of a married couple is covered by a workplace retirement plan during the 2009 tax year but the other is not, the deductibility of the couple's Traditional IRA contribution is based on their combined MAGI as follows:

Full deduction:

Combined MAGI below $166,000.

Partial Deduction:

Combined MAGI between $166,000 and $176,000.

No Deduction:

Combined MAGI above $176,000.

For people under age 50:

For the 2008 and 2009 tax years: Up to $5,000.

For people age 50 or older:

For the 2008 and 2009 tax years: Up to $6,000.

For the 2009 tax year, full Roth contributions are allowed for single filers with modified adjusted gross incomes (MAGIs) below $105,000 and for joint filers with MAGIs below $166,000. If you are married and file separately, you are not eligible for a Roth IRA if your MAGI is $10,000 or more.

For the 2009 tax year, the following phased-out contribution is available:

Single filers earning between $105,000 and $120,000.

Joint filers earning between $166,000 and $176,000.

When you can  make withdrawals

Although federal penalties and taxes apply to withdrawals before age 59½, you can take a penalty-free withdrawal at any age to make a qualified first-home purchase ($10,000 withdrawal limit) or to meet qualified higher-education expenses.

Additional exceptions also apply.