What is the difference between a Traditional IRA and a Roth IRA?
Important Differences Between Traditional IRAs & Roth IRAs
Traditional and Roth Individual Retirement Accounts (IRAs) have these features in common:
- Both are vehicles to help provide for your long-term financial security; and
- Each type of IRA is a personal retirement savings plan that offers certain tax advantages to those who qualify.
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1 If you or your spouse is eligible to participate in an employer-sponsored retirement plan, your contributions may only be tax deductible if you meet certain income and tax filing status requirements.
2 In order for distributions to be made from a Roth IRA free of penalties and federal income taxes, your Roth IRA must have been established at least five tax years before the withdrawal (period begins with the tax year for which your first contribution is made) and your distribution must be: 1) made on or after the date you attain age 59½; 2) made to your beneficiary or your estate after your death; 3) attributable to your being disabled; or 4) taken because you are a qualified first-time home-buyer (lifetime limit of $10,000).
3 For tax year 2010, you may contribute to a Roth IRA if you have taxable income and your modified Adjusted Gross Income does not exceed: a) $177,000-if you are married, filing jointly or a qualifying widow or widower; b) $120,000-if you are filing as single, head of household, or are married, filing separately, and did not live with your spouse at any time during the year;
or c) $10,000-if you are married, filing separately, and lived with your spouse at any time during the tax year. The amount that may be contributed to a Roth IRA begins to phase out beginning at $10,000 below these income limits.
4 Your plan may require that you begin your withdrawals earlier than noted here.
5 Does not apply to investment earnings on your account or dollars contributed to your account through a conversion.
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