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Traditional IRA's  &  Roth IRA's

Individual retirement accounts (IRAs) are a key part of most retirement savings plans. But before you open an account, you need to understand the differences between a Roth IRA and a traditional IRA. Each type of IRA has its own advantages, and saving in one or the other may be a better move at different points in your retirement savings journey.


The biggest difference between a Roth IRA and a traditional IRA is how and when you get a tax break. Contributions to traditional IRAs are tax-deductible, but withdrawals in retirement are taxable. Contributions to Roth IRAs are not tax-deductible, but the withdrawals in retirement are tax-free.

Here are a few comparisons:

Age Limits:


   ROTH IRA

   You can contribute to a Roth IRA at any age.


   TRADITIONAL IRA

   As a result of changes made by the SECURE Act, you can make contributions to a traditional IRA for 2020 or

                          later regardless of your age.

How does my income affect how much I can contribute?


ROTH IRA 
The amount you can contribute to a Roth IRA:
•    Can't exceed the amount of income you earned that year.
•    Can't exceed the IRS-imposed limits (see below).
•    Could be reduced—or even eliminated—based on your modified adjusted gross income (MAGI).

(Details on Roth IRA income limits)


TRADITIONAL IRA 
The amount you can contribute to a traditional IRA:
•    Can't exceed the amount of income you earned that year.
•    Can't exceed the IRS-imposed limits (see below).
There are no additional restrictions based on your income.

 

What are the contribution limits?

 

ROTH IRA 
For the 2021 tax year:
•    If you're under age 50, you can contribute up to $6,000.
•    If you're age 50 or older, you can contribute up to $7,000.
Limits could be lower based on your income.

(Get details on Roth IRA contribution limits)


TRADITIONAL IRA 
For the 2021 tax year:
•    If you're under age 50, you can contribute up to $6,000.
•    If you're age 50 or older, you can contribute up to $7,000.
Limits could be lower based on your income.
(Get details on IRA contribution limits)

Can I claim my contribution as a deduction on my tax return?


ROTH IRA 
You can't deduct your Roth IRA contribution.


TRADITIONAL IRA 
You may be able to deduct some or all of your traditional IRA contributions. The deductible amount could be reduced or eliminated if you or your spouse is already covered by a retirement plan at work.
(Get details on IRA deductions

 

What's the deadline for making contributions in a given year?


ROTH IRA 
The deadline is typically April 15 of the following year.


TRADITIONAL IRA 
The deadline is typically April 15 of the following year.
 

Will I pay taxes on withdrawals?


ROTH IRA 
You'll never pay taxes on withdrawals of your Roth IRA contributions. And you won't pay taxes on withdrawals of your earnings as long as you take them after you've reached age 59½ and you've met the 5-year-holding-period requirement.
(Get details on IRA withdrawals)


TRADITIONAL IRA 
You'll pay ordinary income tax on withdrawals of all traditional IRA earnings and on any contributions you originally deducted on your taxes.
(Get details on IRA withdrawals)

 

Is there a penalty for withdrawals taken before age 59½?


ROTH IRA 
There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings.
(Exceptions to the penalty tax)


TRADITIONAL IRA 
With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.
(Exceptions to the penalty tax)

 

Will I have to take required minimum distributions (RMDs)?


ROTH IRA 
Roth IRAs have no RMDs during your lifetime.


TRADITIONAL IRA 
You must take your first RMD from your traditional IRA by April 1 of the year following the year you reach age 72 (age 70½ if you attained age 70½ before 2020).
For each subsequent year, you'll need to take your annual RMD by December 31.
(Get details on RMDs


 

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W.M. Durham Associates LLC

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Ph:  850-385-3578

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W.M. Durham Associates LLC is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products.  Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.  WM Durham Associates LLC nor any of its employees provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

 

W.M. Durham Associates LLC is not affiliated with or endorsed by any government agency, including the Centers for Medicare & Medicaid Services and the Florida Retirement System (FRS).

All material should be regarded as general information.​​
 

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