Roth IRA vs Tradtional IRA

Compare the features and benefits and determine with your tax for financial advisor which one is most appropriate for your circumstances.

Traditional IRA

A traditional IRA allows tax deferred growth, meaning you do not have to pay taxes on the gains or earnings in your IRA until the money is withdrawn. The amount contributed to the IRA might also be tax deductable depending on your adjusted gross income (AGI).

• You have to be less then 70 1/2 years old to contribute to a traditional IRA.
• For the 2008 tax year individuals under 50 can contribute up to $5,000 and couples under 50 can contribute $10,000. Individuals over 50 can contribute up to $6,000 and couples over 50 can contribute up to $12,000. If one spouse is under 50 and one spouse is over 50 then the max limit is $11,000.
• You have to start withdrawals when you turn 70 1/2 years old, there are penalties if you don't.
• If you make a withdrawal before age 59 1/2 there are penalties.
• There are exceptions to the early withdrawal penalty, but those funds can only be used for a first time home purchase, certain medical expenses or for education expenses.

Roth IRA

With A Roth IRA one makes after tax contributions into an IRA. Your earnings and gains grow tax free. Best of all, any withdrawals are free from federal tax. Since contributions are made on an after tax bases they are not tax deductible.

• You can make contributions at any age to a Roth IRA.
• You can contribute to a Roth IRA if have earned income and your modified AGI is less than $116,000 for single filers and $166,000 for married filing jointly. These numbers are for the 2008 tax year.
• For the 2008 tax year individuals under 50 can contribute up to $5,000 and couples under 50 can contribute $10,000. Individuals over 50 can contribute up to $6,000 and couples over 50 can contribute up to $12,000. If one spouse is under 50 and one spouse is over 50 then the max limit is $11,000.
• You have to have held the account for 5 years and be at least 59 1/2 when you make the first withdrawal.
• Contributions can be withdrawn at any time without taxes or penalties.
• Earnings can be withdrawn without taxes or penalties if you are at least age 59½ and your account has been open for at least 5 years.
• There are no distribution requirements at any age.
• There are exceptions to the early withdrawal penalty, but those funds can only be used for a first time home purchase, certain medical expenses or for education expenses.

Which IRA is best for me?

As you can see, choosing the right IRA depends on your financial circumstances, your adjusted gross income and your age. Be sure to speak with your advisor to determine which IRA is best for you.