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Traditional vs. Roth IRAs
 Which retirement savings vehicle is better: a Traditional or Roth Individual Retirement Account (IRA)? The answer depends on your personal financial situation and whether you want to pay taxes now on money invested in a Roth IRA or take advantage of tax-deferred savings with a Traditional IRA. The following chart answers some of the most frequently asked questions about these two kinds of IRAs. For more information and personal guidance on which IRA would be better for you, please consult with your financial professional and/or tax advisor.

TRADITIONAL IRA ROTH IRA

Are there income limits on the ability to make nondeductible contributions?

Traditional: No.

Roth: Yes, phased out for single filers with adjusted gross income (AGI) between $105,000 and $120,000 and joint filers with AGI between $166,000 and $176,000.

Is there an annual contribution limit?

Traditional: Yes, $5,000 per person to all IRAs combined, but not to exceed earned income.1

Roth: Yes, $5,000 per person to all IRAs combined, but not to exceed earned income.1

Are contributions deductible?

Traditional: Yes, for nonparticipants in an employer plan. For others, they are phased out at $55,000-$65,000 for single/head-of-household filers and $89,000-$109,000 for joint filers or qualifying widow(er)s.2

Roth: No, all contributions are nondeductible, after-tax contributions.

Can a non-income-earning spouse contribute to an IRA?

Traditional: Yes, up to $5,000 per person to all IRAs combined, provided there is a spouse with earned income, and combined contributions do not exceed earned income. No, if neither spouse earns an income.

Roth: Yes, up to $5,000 per person to all IRAs combined, provided there is a spouse with earned income, and combined contributions do not exceed earned income. No, if neither spouse earns an income.

Can a spouse who is not a participant in an employer plan make fully deductible IRA contributions?

Traditional: Yes, they are phased out at $166,000 to $176,000 AGI on a joint return.

Roth: No, all contributions are nondeductible.

Are earnings tax deferred?

Traditional: Yes.

Roth: Yes.

How are withdrawals taxed after age 59½?

Traditional: Withdrawals are subject to tax, with the one exception of pro rata share of nondeductible contributions.

Roth: Withdrawals are tax-free if the account is held for at least five years. Contributions can be withdrawn tax-free at any time.

Must withdrawals begin at age 70½?

Traditional: Yes.

Roth: No.

Are contributions allowed after age 70½?

Traditional: No.

Roth: Yes, if owner has earned income.

How are withdrawals taxed before age 59½?

Traditional: Withdrawals are subject to tax. A 10 percent penalty is added except in case of:

  • Death
  • Disability
  • Life annuity
  • First home purchase (up to $10,000)
  • Educational expenses
  • Medical expenses
  • Health insurance for the unemployed

Roth: Contributions are withdrawn tax-free. Withdrawals of earnings from accounts held at least five years are tax-free in the case of:

  • Death
  • Disability
  • First home purchase (up to $10,000)

Withdrawal of earnings are subject to tax but no penalty in the case of:

  • Life annuity
  • Educational expenses
  • Medical expenses
  • Health insurance for the unemployed

All other withdrawals of earnings are subject to tax plus 10 percent penalty.

What rules apply to rollovers from other IRAs?

Traditional: Eligible distributions from one traditional IRA may be rolled over to another traditional IRA. A rollover from one traditional IRA to another is not subject to tax.

Roth: Eligible distributions from one Roth IRA can be rolled over to another Roth IRA. Eligible distributions from a traditional IRA may be rolled over to a Roth IRA by tax payers with an AGI less than $100,000 and who are single or married filing a joint return. Any amount rolled over from a traditional IRA to a Roth IRA is subject to income tax but is not subject to any 10 percent penalty tax on distributions before age 59½.

1This amount applies to 2009 and may be increased in subsequent years. In 2009, if an IRA participant is age 50 or older, he or she may contribute and deduct an additional $1,000 ($2,000 if the spouse is also over age 50).

2These are 2009 limits and may be increased in subsequent years. The phase-out range for individuals using the MFS filing status (married individual filing a separate return) will remain an AGI of $0-$10,000.

Note: The above information is not intended or written to be used as legal or tax advice. It was written solely to support the sale of annuity products. As a taxpayer, you cannot use it for the purposes of avoiding penalties that may be imposed under the tax laws. You should seek advice on legal or tax questions based on your particular circumstances from an independent attorney or tax advisor.

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Traditional vs. Roth IRAs