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

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Tax day, April 15th, is just around the corner, but there is still time to make a prior-year IRA contribution. Which kind of IRA is right for you? Traditional or Roth?

The maximum contribution to an IRA for tax-year 2015 for those under age 50 is $5,500. For those over age 50, the maximum is $6,500. Any amount below the maximum limit is acceptable. Contributions are allowed in any combination to either type of IRA. For example, an investor over age 50 could contribute $3,000 to a Roth IRA and $3,500 to a Traditional IRA.

Tax BenefitsTax deferred growth,

contributions may be deductible

Tax-free growth,

tax-free qualified withdrawals*

Age Limits for ContributionsUnder age 70 ½ with earned incomeAny age with earned income
Phase-out of Contribution Eligibility due to Income Contributions can be made at any income level (deductibility is affected by income)Single filers: $116,000-$131,000

Joint filers: $183,000-$193,000

Phase-out for Deducting Contributions due to IncomeSingle filers: $58,000-$68,000

Joint filers: $92,000-$112,000

If no retirement plan is offered through employment, income limits do not apply.

Contributions are not deductible
Taxation at WithdrawalIf contributions were deductible, withdrawals are taxed as ordinary income.

If contributions were not deductible, only growth is taxed as ordinary income

Earnings are tax-free if withdrawals are made 5 years after the initial contribution and the IRA owner is age 59 ½ or older.
Withdrawal Penalties Prior to Age 59 ½If contributions were deductible, 10% penalty and ordinary income taxes due on total distribution.On growth only, 10% penalty and ordinary income taxes due. Contributions (basis) are not subject to penalty or taxes.
Required Minimum DistributionsStart at 70 ½None


If you have questions about which type of IRA is most appropriate for you, please reach out to us at Wisdom@WisdomWS.com.

*Roth earnings are federally tax-free after 5 years. Withdrawals prior to 59 ½ are subject to 10% penalty on growth except in cases of death, disability, or qualified first-time home purchase.


Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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