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. 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. Are part-time employees eligible for fringe benefits?

    Learn how offering fringe benefits allows employers to entice new talent to join their teams, although part-time workers ...
  3. Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying ...
  4. How can I avoid paying taxes on my Social Security income?

    Learn how to calculate the percentage of Social Security income benefits that may be taxable, and discover strategies to ...
RELATED TERMS
  1. Elder Care

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

    Definition of Gold IRA
  3. Eligible Transfer

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

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

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

    A new tax-advantaged retirement account that President Barack ...

You May Also Like

Related Articles
  1. Professionals

    Just Retired? No Better Time for a Second ...

  2. Professionals

    When Your Client's Retirement is Around ...

  3. Professionals

    A New Wake-up Call for Savers

  4. Professionals

    Retirement Bliss? Not So fast: When ...

  5. Professionals

    Multiple Accounts? Here's How to Calculate ...

Trading Center