IRA Guide

Roth IRAs vs. Traditional IRAs

Daniela Pylypczak-Wasylyszyn Jul 07, 2015

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.