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)

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