When it comes to saving for retirement, the sooner you get started, the better. Whether you plan to travel, pursue new hobbies or spend more time with loved ones, you don’t want to exit the workforce only to realize you don’t have enough to comfortably support the lifestyle you spent decades working toward.
What is a traditional and Roth IRA? How IRA contributions work (limits and deadlines) Who is eligible to contribute to a traditional or Roth IRA How the tax advantage differs by type of IRA Withdrawal rules for traditional and Roth IRAs Traditional vs Roth IRA at a glance Can you contribute to both a traditional & a Roth IRA? Which IRA is right for you?
What is a traditional IRA?
What is a Roth IRA?
- You are at least age 59½.
- You are disabled.
- You are purchasing your first home ($10,000 lifetime maximum).
- The money is being paid to a beneficiary.
How IRA contributions work
In order to contribute to an IRA, you and/or your spouse must have earned income in the form of wages, salaries or tips from working. Income from real estate rentals, interest, dividends and other types of passive income don’t count as taxable compensation.
What is the contribution limit for traditional & Roth IRAs?
Both traditional and Roth IRAs have a combined contribution limit of $6,500 for 2023. If you’re 50 or older by the end of the year, you’re allowed an additional
What is the contribution deadline for traditional & Roth IRAs?
Traditional and Roth IRA contributions must be made by the tax return filing deadline. For 2023, that date is April 15, 2024.
If you’ve exceeded your IRA contribution limit, you must withdraw excess funds by the tax filing deadline plus extensions to avoid a 6% penalty.
IRA eligibility: Who can contribute?
There are different eligibility requirements for traditional and Roth IRAs.
Traditional IRA eligibility
Any individual with taxable compensation—or a spouse who has taxable compensation if you file jointly—can contribute to a traditional IRA.
Roth IRA eligibility
You must also have earned income to contribute to a Roth IRA. In addition, there are income limits to participate. Depending on your modified adjusted gross income (MAGI)—AGI plus certain deductions and excluded income—and filing status, you only may be eligible to contribute a reduced amount to a Roth IRA, or not be allowed to contribute at all.
- If you make less than the MAGI range listed, you can contribute the full amount to a Roth IRA.
- If you make between the maximum MAGI listed, you can contribute a reduced amount to a Roth IRA.
- If you make equal to or more than the maximum limit listed, you can’t contribute anything to a Roth IRA.
|Married filing jointly or qualifying widow(er)||$218,000-$228,000|
|Single, head of household or married filing separately (and didn’t live with your spouse during the year||$138,000-$153,000|
|Married filing separately (and did live with your spouse during the year)||$0-$10,000|
Tax advantages of traditional & Roth IRAs
No matter which type of IRA you choose, you’re putting the power of time to work for your retirement assets. Delaying
Traditional IRA tax advantages
The tax advantages for traditional IRAs come at the point of contribution and during the tax-deferred growth period. Contributions to a traditional IRA may be fully or partially tax-deductible if you and/or your spouse aren’t enrolled in an employer-sponsored retirement plan like a 401(k)—or you are, but your MAGI falls below certain thresholds.
- If you make less than the MAGI range listed, a full deduction is available.
- If you make between the MAGI listed, a partial deduction is available.
- If you make equal to or more than the maximum MAGI listed, no deduction is available.
|Married filing jointly or qualifying widow(er)|
$218,000-$228,000 (if one spouse participates in an
$116,000-$136,000 (if both spouses participate in
|Single or head of household||$73,000-$83,000|
|Married filing separately|
Less than $10,000: Partial deduction available
$10,000 and up: No deduction available
Roth IRA tax advantages
The tax advantages for Roth IRAs come both during the tax-deferred growth period and at the point of withdrawal. Contributions to a Roth IRA always are made with after-tax dollars, meaning withdrawals on contributions can be taken any time for any reason and earnings are tax-free as long as they meet a qualified distribution event. There are no tax deductions for Roth IRA contributions.
A guide to retirement savings by age
Withdrawal rules for traditional & Roth IRAs
Withdrawal rules differ between traditional and Roth IRAs.
- Traditional IRA: Contributions and earnings are taxed at your regular income tax rate when withdrawn but are penalty-free after age 59½. If you choose to withdraw the money early, it’s subject to a 10% penalty unless you qualify for an
- Roth IRA: Contributions can come out at any time without taxes or penalties. Earnings can be withdrawn tax- and penalty-free for qualified distributions, but non-qualified withdrawals may result in taxes and/or penalties.
IRAs & required minimum distributions (RMDs)
Traditional IRAs are subject to
- If you turn 73 before 2033, your RMD age is 73.
- If you turn 74 after 2032, you start taking RMDs at 75.
RMDs—calculated by taking your previous year’s IRA balance and dividing it by your age-dependent life expectancy
Roth IRAs do not have RMDs for the IRA owner; Roth IRA beneficiaries will be subject to RMDs.
Roth IRAs are subject to the five-year rule
Roth IRAs have a
Withdrawals: If you withdraw Roth IRA earnings from your account within five years of your first contribution, you have to pay taxes (and potentially a penalty) on your earnings. Conversions: If you convert a different type of retirement account to a Roth IRA and you withdraw your conversion amount within five years, the 10% penalty will apply unless you meet a penalty exception. If you’re at least 59½ (which is a penalty exception), you don’t have to wait five years to withdraw the conversion amount penalty-free, but would have to wait to withdraw the earnings tax-free. Inheritances: If you inherit a Roth IRA, you’ll owe taxes on the earnings you withdraw unless it’s been at least five years since the account owner’s first contribution or conversation to the Roth account.
Traditional & Roth IRAs at a glance
| ||Traditional IRA||Roth IRA|
|Contribution limit||Yes, $6,500 (or $7,500 if you’re 50 or older) across all IRA accounts||Yes, $6,500 (or $7,500 if you’re 50 or older) across all IRA accounts|
|Taxation||Contributions typically made pre-tax; taxed at time of withdrawal||Contributions made after-tax; tax-free at time of qualified withdrawal|
|Tax-deductible||Yes, but there are possible income limits||No|
|Taxation||Taxable upon withdrawal||Earnings taxable unless a qualified distribution|
|Early withdrawal penalty||Yes, 10% unless you qualify for exception||Yes, 10% on earnings unless you qualify for |
Can you contribute to both a traditional & a Roth IRA?
Yes, as long as you meet the eligibility requirements,
Roth vs. traditional IRA: Which should you open?
A traditional IRA might be right for you if:
- You currently have earned income.
- You think you’ll be in a lower tax bracket in retirement.
- You would benefit from a potential immediate federal income tax deduction.
- You don’t think you’ll need to take money out of the account until retirement.
- You plan to start withdrawing your savings between the ages of 59½ and 73.
A Roth IRA might be right for you if:
- You currently have earned income.
- You have a 2023 MAGI that is less than $228,000 for joint filers or $153.000 for single filers.
- You think you’ll be in a higher tax bracket in retirement.
- You would benefit from federal tax-free qualified distributions in the future.
- You want the flexibility to take out money you’ve contributed before age 59½ without penalties.
- You want the option to let your money grow as long as you choose, without being required to start withdrawing it at a certain age.
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