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Who is eligible |
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Traditional IRA |
Roth IRA |
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Any person with earned income who is under 70-1/2. |
Single filer with earned income: eligibility to
participate phased out with modified adjusted gross income (MAGI) from
$95,000–$109,999. |
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A nonworking spouse under age 70-1/2 who files a joint return that
includes earned income. |
Joint filers with earned income: eligibility to
participate phased out with modified adjusted gross income (MAGI) from
$150,000–$159,999. |
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Married, filing separately: eligibility to
participate phased out at $10,000. |
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Maximum annual contribution |
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Traditional IRA |
Roth IRA |
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The total contribution to all your IRAs is $4,000. If you’re age 50 or
older, you can make an additional contribution of up to $500, for a
total of $4,500. |
Same as Traditional IRA, subject to phase-out range depending on
modified adjusted gross income (MAGI). |
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Phase-out range for deductible portion of contribution |
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Traditional IRA |
Roth IRA |
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Single filer retirement plan participant: modified
adjusted gross income (MAGI) from $45,001–$54,999. |
None of the contribution is tax-deductible. |
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Single filer, no retirement plan participation:
contribution is 100% deductible. |
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Joint filer, retirement plan participant: MAGI from
$65,001–$74,999. |
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Married, filing separately, retirement plan participant:
MAGI from $0–$9,999. |
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Joint filer, no retirement plan participation but spouse is covered by
plan: MAGI from $150,001–$159,999. |
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Joint filer, neither spouse is a retirement plan participant:
contribution is 100% deductible. |
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Tax credit for contributions |
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Traditional IRA |
Roth IRA |
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Through 2006, eligible taxpayers can claim a nonrefundable tax credit
for contributions. |
Same as Traditional IRA. |
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The maximum credit allowed is 50% of the annual contribution amount up
to $2,000. |
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Joint filers with a modified adjusted gross income (MAGI) of $50,000 or
less, heads of household with a MAGI of $37,500 or less and single
filers with a MAGI of $25,000 or less qualify for the credit. |
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Federal income-tax treatment on contributions |
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Traditional IRA |
Roth IRA |
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Taxes are deferred until distributions are made; taxable distributions
are treated as ordinary income. |
Contributions are made with after-tax money; therefore, withdrawals from
the contribution amount (basis amount) are always tax-free. |
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If nondeductible contributions have been made, each withdrawal is taxed
proportionately. |
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Federal income-tax treatment on earnings |
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Traditional IRA |
Roth IRA |
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Earnings grow tax-deferred until distributions begin. Distributions are
taxed as ordinary income. |
Qualified distributions are tax-free. |
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Nonqualified distributions: earnings are taxed as
ordinary income. |
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Conversions: earnings are tax-free after the
conversion amount satisfies the five-year investment period. |
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Conversions |
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Traditional IRA |
Roth IRA |
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Conversion to a Roth IRA: allowed, if modified
adjusted gross income (MAGI) is $100,000 or less (single or joint) and,
if married, taxpayers file jointly. The converted amount is taxed as
income, but no penalty applies. |
Conversion to an education savings account: not
allowed. |
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Conversion to an education savings account: not
allowed. |
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Rollovers |
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Traditional IRA |
Roth IRA |
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To employer-sponsored plans: pretax contributions
can be rolled over to a 401(k) or to another qualified plan, as well as
to 403(b) and 457(b) plans. However, the receiving plan must accept IRA
rollovers. |
From/to another Roth IRA: allowed. |
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From employer-sponsored plans: eligible pretax and
after-tax distributions from qualified plans, as well as from 403(b) and
457(b) plans, can be rolled over. |
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Distributions |
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Traditional IRA |
Roth IRA |
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Distributions from contributions and earnings can be taken after age
59-1/2 without penalty. |
Distributions from contributions
can be made any time without taxes or penalty. |
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Mandatory withdrawals must begin at age 70-1/2. |
Distributions from earnings
are tax-free if your initial contribution to the account was made at
least five years ago and: |
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Premature distributions are subject to a 10% penalty tax unless you
qualify for the following exceptions: |
you’re age 59-1/2 |
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you’re disabled |
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you’re age 59-1/2 |
you’re purchasing a first home |
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you’re disabled |
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you’re taking substantially equal periodic payments |
Payments made to your beneficiaries after the five-year period are also
tax and penalty free. Payments made before the end of the five-year
period are penalty free. |
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the distribution is for certain medical bills |
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the distribution is used for health insurance premiums during
unemployment lasting at least 12 weeks |
Distributions from earnings
are not subject to the 10% penalty as long as you qualify for an
exception: |
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the distribution is for qualified education expenses |
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the distribution is used to purchase a first home (up to $10,000
lifetime maximum) |
same as exceptions for Traditional IRAs |
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Distributions to your beneficiaries are also exempt from the 10%
penalty. |
Distributions from a conversion
amount must satisfy a five-year investment period to avoid the 10%
penalty. This pertains only to the tax-deferred portion of the
conversion amount, which was treated as income for tax purposes at the
time of the conversion. |
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Required minimum distributions (RMDs) |
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Traditional IRA |
Roth IRA |
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Must begin no later than April 1 of the year following the year the
taxpayer turns 70-1/2. May be taken in a lump sum or annual payments. |
No RMD applies before your death. After death, Traditional IRA
distribution rules apply for your beneficiaries. |
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All IRA balances are aggregated, but the withdrawals may be taken from
only one. However, the contributions/earnings are taxed pro rata. |