Understanding the differences between Roth IRAs and Traditional IRAs is essential for Amercians saving for retirement. Consult our chart below to compare the two.
| Tax Year 2015 | Roth IRA | Traditional IRA |
|---|---|---|
| Contributions Taxed? | Not tax deductible | Tax deductible |
| Withdrawals Taxed? | Not taxed | Taxed as income |
| Contribution Limits | Under 50 years old: $5,500 per year. 50 and over: $6,500 per year | Under 50 years old: $5,500 per year. 50 and over: $6,500 per year |
| Income Limits | Single: Full contribution up to $112k, partial contribution to $127k. | Single: Full contribution up to $59k, partial contribution to $69k. |
| Income Limits | Single: Full contribution up to $116k, partial contribution to $131k. | Single: Full contribution up to $61k, partial contribution to $71k. |
| Married: Full contribution up to $183k, partial contribution to $193k. | Married Filing Jointly: Full contribution up to $98k, partial contribution to $118k. | |
| Cannot contribute more than you earn in the tax year. | Cannot contribute more than you earn in the tax year. | |
| Distributions (Withdrawals) | Withdrawals can begin at age 59½ if owner becomes disabled, as long as contributions had been made for 5 years. | Withdrawals can begin at age 59½ if owner becomes disabled. |
| Mandatory Distributions | None. Withdrawals are completely at owner's discretion. | Withdrawals must begin by age 70½, otherwise a 50% of minimum distribution penalty is incurred. |
| Early Withdrawals | Early withdrawals are subject to normal income taxes. A 10% penalty is incurred for non-qualified distributions. | A 10% penalty is incurred, plus normal income taxes for distributions before age 59½. |
| Early Withdrawal Exceptions | Exceptions to early withdrawl penalties are made for: Home down payments, Higher education expenses, and Medical expenses that total more than 7.5% of Adjusted Gross Income. | Exceptions to early withdrawl penalties are made for: Home down payments, Higher education expenses, and Medical expenses that total more than 7.5% of Adjusted Gross Income. |
Always consult with a personal finance or tax professional before beginning any retirement plan.
What IRA is Right for Me?
A general rule of thumb is if you expect to be in a higher tax bracket when you retire, choose a Roth IRA. If you expect to be in a lower tax bracket, choose a Traditional IRA.
Our opinion? Since Roth IRA withdrawals are not taxed, we feel a Roth makes more sense for more people.
