Traditional IRA

Roth IRA

Tax Advantages

Ø  Tax-deferred growth potential.

Ø  You generally pay taxes when you make withdrawals, at which time you may be in a lower tax bracket.  

Ø  Your contributions may be tax-deductible if you or your spouse does not participate in an employer-sponsored plan.

Ø  Tax-free growth potential.

Ø  You pay no taxes when you make qualified withdrawals after age 59½ and your account has been open at least five years.

Eligibility

Age

 Maximum Income

Minimum Income

Ø  You must be under age 70½ and have earned income.

Ø  No restrictions.

Ø  You must have earned income equal to or greater than your contributions

Ø  No age restrictions, but you must have earned income in order to make contributions.
 

Ø   May not be eligible if your income is over $120,000 for single filers and $177,000 for joint filers in 2010 ($120,000 for single filers and $176,000 for joint filers in 2009).

Ø  Earned income must be equal to or greater than your annual contributions

Maximum Contributions

Ø  2009—$5,000 ($6,000 if you are age 50 or older)

Withdrawals

Tax-Free

Taxable

Required Minimum Distributions

Exception

Ø  None

Ø  All withdrawals from a Traditional IRA (except for amounts attributable to nondeductible contributions) are generally taxed as ordinary income.

Ø  You must begin taking required minimum distributions by April 1 of the year following the year in which you reach age 70½.

Ø  The 10% penalty tax for withdrawals made before age 59½ is waived in cases such as: death, disability, first-time home purchase up to $10,000.00, qualified medical expenses, etc.

Ø  Contributions may be withdrawn at any time without taxes or penalties; earnings may be withdrawn tax-free and penalty free once you reach age 59½ and the account has been open for at least five years.

Ø  Earnings may be subject to taxes and penalties if distributed before age 59½ and before the account is five years old.

Ø  Minimum distributions are not required at any age. However, if your estate includes Roth IRA assets after your death, your beneficiaries may  have to take required minimum distributions

Ø  Penalties for withdrawals made before age 59½ are waived in the following cases. These exceptions allow tax-free and penalty free distributions upon a five-year holding period: death, disability, First-time home purchase up to $10,000

Note: five-year holding period required for tax-free withdrawals regardless of investor's age.