NOTE: All figures as of 2017

ROTH IRA

Traditional IRA

Age Limit

You can contribute at any age.

You must be under 70˝ years old to contribute.

Contribution Limits

$5,500 per year if you are under age 50, and $6,500 if you are 50 or older.

$5,500 per year if you are under age 50, and $6,500 if you are 50 or older.

Can I deduct my contribution for tax purposes?

No.

Yes. You get a full deduction on both state and federal taxes, unless you or your spouse are active participants in a company retirement plan (e.g., a 401k, 403B). See IRA Deduction Limits 2017 if you are a participant, or if your spouse is a participant.

Income: Minimum requirements

You cannot contribute more than your earned income for the year. However, a spouse’s income satisfies the earned income requirement.

Income: Maximum Limitations

Single tax filers are only eligible to contribute if their modified AGI (Adjusted Gross Income) is less than $118,000 or a partial contribution is allowed for AGI of $118,000 - $133,000. Married couples filing jointly are eligible to contribute with modified AGIs of less than $186,000, and partially contribute if their AGI is $186,000 - $196,000.

Anyone with earned income can contribute. However, if you are an active participant in another qualified plan (e.g., 401k) your tax deduction will be phased out above the income thresholds (see links above). I usually do NOT recommend making non-deductible contributions for the reasons explained at the bottom of: FAQs Regarding IRA Contributions.

Are withdrawals taxable?

No: You can always withdraw your contributions tax-free. Earnings can also be withdrawn tax-free after you are 59˝ and you’ve had any ROTH IRA account for five years.

Yes: You will pay ordinary income tax on withdrawals (earnings and contributions).

What is the penalty for “premature” withdrawals taken before the age of 59˝?

10% penalty on withdrawals of earnings taken before age of 59˝. Contributions can be withdrawn penalty-free at any age.

10% penalty on withdrawals prior to age of 59˝.

Are there any exceptions to the 10% penalty on early withdrawals?

Yes. The most common exceptions are: First-time homebuyer up to $10,000, qualified education expenses, death, disability, and medical bills exceeding 10% of AGI. Here is a complete list of IRA withdrawal penalty exceptions from the IRS.

Additional Benefits

 

Contributions lower your AGI, potentially qualifying you for other tax incentives.

Are there Required Minimum Distributions (RMDs)?

There are no RMDs during your lifetime.

RMDs must begin by April 1 of the year after you reach age 70˝ and by every Dec 31st thereafter.

Will my beneficiaries be taxed when they inherit the account?

No. Distributions to beneficiaries from an inherited ROTH IRA are tax-free. Beneficiaries can cash out the entire account or take distributions as they wish. They must take a Required Minimum Distribution (RMD) each year. First distribution is required in the calendar year following death. Beneficiary can stretch out distributions over his or her remaining life expectancy to keep the account growing tax-free.

Yes. Beneficiaries pay income taxes on withdrawals from inherited IRAs. Beneficiaries can cash out the entire account or take distributions as they wish. They must take a Required Minimum Distribution (RMD) each year. First distribution is required in the calendar year following death. Beneficiary can stretch out distributions over his or her remaining life expectancy to keep the account growing tax-deferred.