TD Ameritrade

Traditional IRA

A Traditional IRA allows your investment earnings to grow tax deferred until withdrawn, typically at retirement. Generally, if you have earned income or receive alimony, you can establish IRA accounts prior to the tax year in which you reach age 70½. Your entire contribution may not be deductible on your income tax return, depending on your income and your eligibility for an employer-sponsored retirement plan. Additionally, at 70½ you must begin taking an annual Required Minimum Distribution (RMD), the amount of which depends on rules set by the IRS. Traditional IRAs offer two distinct advantages in terms of taxes: potential deductibility of contributions and tax deferral on investment earnings.

Roth IRA

The Roth IRA presents a potentially attractive alternative to the Traditional IRA because it may allow you to avoid future taxation of your retirement funds by making nondeductible contributions now. That means there is no upfront tax deduction for contributions. The flip-side benefit is that all the earnings are federal tax-free when they are withdrawn according to IRS rules. This is much different than a Traditional IRA, which taxes withdrawals. Another potential benefit is no required minimum distribution (RMD), so if you decide you don’t need to start withdrawing funds at age 70½ you will not incur any penalties.


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One of the factors that you’ll need to think about when choosing between a Traditional and Roth IRA is your current tax bracket, and what that might be during retirement. This will impact what’s ultimately left after taxes in your retirement fund. Contact a retirement consultant who can help you choose.

 

Traditional and Roth IRA Comparison Overview

Traditional IRARoth IRA

Age

You are under age 70½ by the end of the calendar year

There are no age limits

 

Income

To participate, you must earn income (there are no maximum income limits)

 

 

To contribute, you must earn income. The maximum amount you can contribute each year phases-out as your household income exceeds

2016: If you are single, up to $117,000

          If you file jointly, up to $184,000
2017: If you are single, up to $118,000
          If you file jointly, up to $186,000

Contribution Limits

Contribution Limits

Up to age 50: $5,500

Age 50-70½: $6,500

Age 70½+: Not allowed

Contribution Limits

Up to age 50: $5,500

Age 50-70½: $6,500

 

Contributions

 

 

May be tax deductible

 

 

 

 

Are not tax deductible

 

 

Earnings

 

Grow tax-deferred

 

 

Grow tax-deferred

 

Distributions

Are penalty-free and taxed as ordinary income when taken after age 59½

 

 

 

Are free from federal income tax when:

- The Roth IRA account has been open for at least 5 years

- You are age 59½ or older

 

Required Minimum Distributions

Are required April 1 of the year following the year you turn 70½

 

Are never required

 

 

Early Withdrawals

Withdrawals before age 59½ are subject to a 10% penalty in addition to any ordinary income tax that may be due

 

Withdrawals before age 59½ are subject to a 10% penalty in addition to any ordinary income tax that may be due

 

Learn how coverting to a Roth IRA may provide you with tax-saving benefits.

We'll help you figure out which type of IRA is best for your goals. Use the free IRA Selection Tool or visit with our retirement consultants to help guide your every step.

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