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. How do I open an IRA?

    Opening a Roth or Traditional IRA online with a minimal deposit takes less than 15 minutes when starting an account with ...
  2. When can benefits be received from a provident fund?

    Find out when participants in provident funds can begin receiving benefits, including how funds can be used to finance important ...
  3. Is Social Security Income a perpetuity?

    Find out why Social Security income is not classified as a perpetuity, including what constitutes a perpetuity and the basics ...
  4. What types of investments are allowed in a provident fund?

    Read about the types of investments allowed in various provident funds around the world, including the Indian, Malaysian ...
RELATED TERMS
  1. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  2. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  3. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  4. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  5. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  6. Gold IRA

    Definition of Gold IRA

You May Also Like

Related Articles
  1. Retirement

    How do I open an IRA?

  2. Retirement

    Does it Make Sense to Have an MLP in ...

  3. Retirement

    Top Tips for Rebalancing 401(k) Assets

  4. Professionals

    Few Target-Date Managers Invest in Their ...

  5. Fundamental Analysis

    Should You Hire an Advisor or DIY Your ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!