Traditional IRA

Roth IRA

Overview

Traditional IRAs allow you to invest money pre-tax. This means that your earnings will not be taxed until you withdraw your money after retirement. If you meet the eligibility and contribution requirements, you may be able to make tax-deductible contributions.

Roth IRAs give you the ability to invest money that has already been taxed. Your after-tax dollars grow tax-deferred. You may be able to withdraw your money tax-free upon retirement, as long as you stay within the eligibility, contribution and income requirements.

Eligibility

Income Requirements

• You must earn income equal to the amount you contribute.

• You must earn income equal to the amount you contribute.
• In 2010, your modified adjusted gross income (MAGI) must be less than $120,000 for single filers and $177,000 for married individuals filing a joint return. Contribution amounts begin to be phased out for single filers earning between $105,000 and $120,000 and between $167,000 and 177,000 for married individuals filing a joint return.

Age Requirements

• None.

• None.

Contribution Requirements

• You must be younger than 70 ½ years old.

• In 2010, if you are under age 50, you may contribute the lesser of either $5,000 or the full amount of your employment compensation.
• Contributions must be made by April 15 of the following year for any given tax year.

Catch-up Contribution Requirements

• If you are age 50 or older in 2010, you may contribute the lesser of either $6,000 or the full amount of your employment compensation.

Tax Benefits

• Earnings grow tax-deferred.
• Contributions are tax-deductible if you are not covered by an employer-sponsored retirement plan.

• Earnings grow tax-free.
• Contributions are not tax-deductible.

Withdrawal Requirements

Early Withdrawal Penalty

• If you are under age 59 ½, you will be subject to a 10% federal tax penalty on withdrawals.

• Non-taxable conversions can be withdrawn at anytime penalty-free.
• If you are under age 59 ½, you will be subject to a 10% federal tax penalty on earnings withdrawals.

Withdrawal Taxes

• Earnings and tax-deductible contributions will be subject to ordinary income tax upon withdrawal.
• Nondeductible contributions will not be subject to federal tax.
• State tax may apply.

• Contributions can be withdrawn at anytime tax-free.
• Earnings can be withdrawn tax-free if you are more than 59 ½ years old and you have had your account for at least five years.
• Certain exceptions may apply.
• State tax may apply.