Traditional vs. Roth – which IRA is right for me?

While traditional and Roth IRAs both allow you to save for retirement, it’s important to know their differences.  

The IRS has income and age requirements that determine what type of IRA you can contribute to, and if you are eligible to deduct your contributions.  

Here are some key differences: 

Features  Traditional IRA  Roth IRA 
Can I contribute?  You can contribute if you (or your spouse, if filing taxes jointly) have qualifying earned income.  You can contribution if you (or your spouse, if filing taxes jointly) have qualifying earned income and you meet the IRS income limits (2020 and 2021 limits). 
Are my contributions deductible? (before tax)  You can deduct traditional contributions if you meet the IRS deduction limits.  Roth contributions are not deductible. 
Contribution limit 

The 2021 combined contribution limit of your traditional and Roth IRAs is the lesser of: 

  • $6,000 ($7,000 if you’re age 50 or older), or 
  • Your taxable compensation for the year 
Contribution deadline  You can contribute to your traditional and/or Roth IRA until your tax filing deadline (not including extensions). 
Taxation of withdrawals  Your contributions and earnings will be taxed at the time of withdrawal.  Your contributions can be withdrawn tax-free at any time; earnings can be withdrawn federally tax-free and penalty-free if it has been more than 5 years since your initial contribution and you are over age 59.5 or qualify for an exception. 
Early withdrawal penalty  A 10% early withdrawal penalty may be assessed if you withdraw prior to age 59 1/2, unless you qualify for an exemption. 
Required Minimum Distribution (RMD)  RMDs are generally required to begin April 1 following the year in which you turn age 72 (70 1/2 if you reach the age of 70 ½ before January 1, 2020) and by December 31 of later years.  RMDs are not required to be taken at any age from a Roth IRA if you’re the original account owner. 

 

M1 is unable to advise if a particular IRA type is right for you 

Please consult a qualified financial professional with additional questions you have regarding your specific financial situation or any future tax implications. 

 

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