This section will show the properties of both accounts side by side as they are similar but have a few differences that can help you decide which one is right for you. Both IRA options can be funded by contributions or by rolling over your assets from a 401(k) from another financial institution. The difference between them is mostly how and when your money is taxed. 

IRA

Summary

Offers you the potential to save on taxes upfront and defer them until you take distributions from the account. 

Taxes

You make contributions on a pretax basis (if your income is below a certain threshold) and pay no taxes until you withdraw money. 

Contribution Limit

For the 2024 tax year:

  • If you’re 49 or younger: Up to $7,000

  • If you’re 50 or older: Up to $8,000

Contribution Deadline

You can make contributions throughout the year up to the tax-filing deadline 

Saver’s Credit Eligibility 

Eligible taxpayers can receive a nonrefundable tax credit of up to $1,000 for single filers ($2,000 for joint filers) for their traditional IRA contributions. 

Distributions

Distributions are generally subject to taxes. If you take a distribution before you’re 59½, you may have to pay an additional 10% tax. 

 

Required Minimum Distributions 

You’re required to withdraw a minimum amount each year beginning at age 73. These are known as required minimum distributions (RMDs). 

Your RMD for any year is the account balance at the end of the prior calendar year divided by a life expectancy factor, according to the IRS.

The IRS penalty for not taking the RMD is 25% of the amount not taken by the deadline. Deadline to take your first RMD is generally April 1st of the year after you turn 73, and Dec. 31st each year after that. 

Investment Options 

Can invest assets in a variety of investment options, including stocks, bonds, certificates of deposit (CDs) and mutual funds.

Roth IRA

Summary

Helps you save for retirement with after-tax contributions that offer the potential for tax-free income in retirement. 

Taxes

Your contributions are not tax deductible, but any earnings growth is tax free, and qualified withdrawals are tax and penalty free. 

Contribution Limit

For the 2024 tax year:

  • If you’re 49 or younger: Up to $7,000

  • If you’re 50 or older: Up to $8,000

Contribution Deadline

You can make contributions throughout the year up to the tax-filing deadline 

Saver’s Credit Eligibility 

Eligible taxpayers can receive a nonrefundable tax credit of up to $1,000 for single filers ($2,000 for joint filers) for their Roth IRA contributions 

Distributions

Distributions are tax free if they’re “qualified.” It’s a qualified distribution if:

 - 5 years have passed since the first day of the year of your first contribution AND you’re 59½. 

Required Minimum Distributions 

You’re not required to withdraw a minimum amount of money at a certain age. 

Investment Options 

Can invest assets in a variety of investment options, including stocks, bonds, certificates of deposit (CDs) and mutual funds.

How Do I Decide???

Traditional??

 A traditional IRA would be better if you are older and expect your tax bracket to stay the same or lower in the coming years.

Or Roth?

A Roth is more your fit if you are young and in a low tax bracket and expect to be in a higher tax bracket than you are now.

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