Traditional IRAs & Roth IRA

The Traditional IRA Versus The Roth IRA

The following chart illustrates the differences between the traditional IRA and the Roth IRA. Use the information to help you decide which IRA best suits your situation.

Traditional IRA

Roth IRA

Maximum annual contribution = $4,000 in 2007, $5,000 for those reaching age 50 by December 31, 2007.

Maximum annual contribution = $4,000 in 2007, $5,000 for those reaching age 50 by December 31, 2007.

If neither you nor your spouse is covered by a pension plan, the IRA contribution is fully deductible. If you or your spouse is covered by a pension plan, the IRA contribution deduction may be limited or completely phased-out.

Contributions are not deductible.

Anyone can establish a traditional IRA.

In order to establish a Roth IRA, your modified adjusted gross income, if filing a joint return, cannot exceed $166,000 ($114,000 for singles).  In effect, this limitation will be eliminated after 2009.

Contributions and earnings grow tax-deferred until withdrawal.

Contributions and earnings grow tax-free and withdrawals are tax-free provided the IRA is held for at least five years and withdrawals begin after age 59 1/2 or are due to death or disability, or for “first-time home buyers” subject to a $10,000 limit.

Contributions are not allowed after age 70 1/2.

Contributions are allowed after age 70 1/2 provided you have earned income.

Withdrawals must begin at age 70 1/2.

Withdrawals do not have to begin at age 70 1/2.

Penalty-free withdrawals can be made for a qualified first-time home purchase subject to a $10,000 lifetime limit.

Provided the IRA is held for at least five years, penalty-free, tax-free withdrawals can be made for a qualified first-time home purchase subject to a $10,000 lifetime limit.

Penalty-free withdrawals can be made for higher education expenses of the taxpayer, spouse, children, or grandchildren.

Penalty-free withdrawals can be made for higher education expenses of the taxpayer, spouse, children, or grandchildren.

NOTE:  The amounts shown above are only for the year noted.  The Economic Growth and Tax Relief Act of 2001 calls for increasing dollar amounts of contributions (and income eligibility) up to the year 2010.  Without any intervening legislation, the rules for these accounts will revert to their pre-Act levels.