What is the difference between a Traditional and a Roth IRA?

By Denise Appleby AAA
A:

The main difference between a Traditional and a Roth IRA is the way contributions are deducted for tax breaks. Whereas contributions to Traditional IRAs are either deductible or non-deductible, Roth IRA contributions are always non-deductible. As a result, Roth IRAs offer tax-sheltered growth, whereas Traditional IRAs over tax-deferred growth.

In addition, Traditional and Roth IRAs have different age limits. If you'd like to contribute to your IRA for as long as you'd like, Roth IRAs would be the best choice as there is no age limit. You may not make contributions to a Traditional IRA after and during the year you reach age 70.5.

Another difference between Traditional and Roth IRAs are income limitations. Whereas a Traditional IRA has no income caps, a Roth IRA has the following for 2007 and 2008:

Situations 2007 2008
Individuals who are married and file a joint tax return $166,000 $169,000
Individuals who are married, file a separate tax return and lived with their spouse at any time during the year $10,000 $10,000
Individuals who file as single, head of household, or married filing separately and did not live with their spouse at any time during the year $114,000 $116,000

To learn more, see Roth or Traditional IRA … Which is the Better Choice?

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. I am in my mid thirties and have nothing invested for retirement. Is it too late ...

    It is never too late to start saving for retirement. Even starting at age 35 means you will have more than 30 years to save.The ...
  2. Should I collect early Social Security?

    The earliest age that you can start receiving social security benefits is age 62. Full retirement was age 65 for many years; ...
  3. I work for two companies. How much can I contribute to each company's SIMPLE IRA?

    It depends.If you work for two companies that are unrelated and unaffiliated, you can make salary deferral contributions ...
  4. Are there special benefits for U.S. armed forces personnel?

    If you are a member of the military, you may be afforded special tax benefits that might not be available to other taxpayers. ...
RELATED TERMS
  1. Gold IRA

    Definition of Gold IRA
  2. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  3. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  4. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
  5. MyRA

    A new tax-advantaged retirement account that President Barack ...
  6. Provident Fund

    A compulsory, government-managed retirement savings scheme used ...
comments powered by Disqus
Related Articles
  1. An Overview Of The Pension Benefit Guaranty ...
    Retirement

    An Overview Of The Pension Benefit Guaranty ...

  2. Keeping Track Of Retirement Plan Assets
    Retirement

    Keeping Track Of Retirement Plan Assets

  3. Tips On How To Use IRAs To Boost Retirement ...
    Retirement

    Tips On How To Use IRAs To Boost Retirement ...

  4. Tax-Saving Advice For IRA Holders
    Taxes

    Tax-Saving Advice For IRA Holders

  5. Gold IRA Rollover
    Retirement

    Gold IRA Rollover

Trading Center