Landmark Tax Group

Tax Benefits of Traditional and Roth IRAs

INTERNAL REVENUE SERVICE – Both traditional and Roth IRAs help you save money for your retirement but offer different advantages. Here are highlights of some of their similarities and differences:

 

 Features Traditional IRA Roth IRA
Eligibility to contribute You can contribute if you (or your spouse if filing jointly) have taxable compensation but not after you are age70½ or older. Regardless of your age, you can contribute if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts (see 2012 and 2013 amounts).
Type of contributions You can deduct your contributions if you qualify. You can only make after-tax (non-deductible) contributions.
Contribution limits The most you can contribute to all of your traditional and Roth IRAs is the smaller of:For 2012, $5,000, or $6,000 if you’re age 50 or older by the end of the year ($5,500 or $6,500 for 2013); or your taxable compensation for the year.
Contribution deadline Your tax return filing deadline (not including extensions). For example, you can contribute for 2012 until April 15, 2013.
Withdrawals You can withdraw money anytime.
Required minimum distributions You must start taking distributions by April 1 following the year in which you turn 70½ and by December 31 of later years. Not required if you are the original owner.
Tax on withdrawals and distributions You must include in gross income any deductible contributions and earnings that are distributed and may have to pay an additional 10% early withdrawal tax unless you are age 59½ or qualify for another exception. None, if it’s a qualified distribution. Otherwise, part of the distribution may be taxable and you may have to pay an additional 10% early withdrawal tax unless you are age 59½ or qualify for another exception.

See: 5 Tax Credits that Can Reduce Your Taxes

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