IRAs are a great tool to use as you save for your future. With different options available, it's important to figure out which type of IRA is the best fit for your circumstances. Talk to your tax advisor to determine which IRA is best for you.
To start your research, take a look at the table below for a comparison between a Traditional and Roth IRA. Please note that the following is for informational purposes only and is not intended as advice. Please consult your tax advisor for your specific situation.
|Traditional IRA||Roth IRA|
|Primary Features||The earnings are tax-deferred until withdrawn and for many taxpayers, the contributions made are tax deductible.||All qualified distributions (defined as withdrawals allowed from the plan without penalty) are tax-free.|
|Contribution, deduction and income limits||These limits are published annually by the IRS.||These limits are published annually by the IRS.|
|Tax Advantages||Traditional IRAs are tax deferred. You do not owe taxes on any earnings until you make a withdrawal. If you qualify, you may be able to deduct your contributions to a Traditional IRA on your federal income tax return, depending on tax-filing and active-participant statuses, as well as income amount. Earnings grow on a tax-deferred basis and are added to taxable income for the year distributed.||Contributions to a Roth IRA are not tax deductible. Earnings grow tax deferred. A qualified distribution from a Roth IRA is tax-free. Earnings are tax-free if you have had an account for five years and one of the following applies:
After age 59 ½, Death, Disability, First-time home purchase (up to $10,000.00)
|Age for required distributions||Mandatory distributions must begin by April 1 following the year you reach age 70 ½. Beneficiaries are also subject to this rule.||Distributions are not required during your lifetime.|
|Withdrawal penalties||There is a 10% IRS penalty on withdrawals prior to age 59 ½ except for withdrawals due to: Death,
Disability,Pre-59 ½ periodic payments, Qualifying medical expenses, Health insurance premiums while unemployed.
Withdrawals up to $10,000.00 toward the purchase of a first home, Conversion to a Roth IRA,
Higher-education expenses. Additional penalties from WSECU may apply. The portion of a withdrawal that is the return of nondeductible contributions is not subject to penalty.
There is a 10% penalty applied to the earnings portions prior to age 59½ except for withdrawals due to: Death,
Withdrawals of after-tax contributions are not subject to penalty.
|Conversion options||A Traditional IRA can be converted to a Roth IRA if your income is within IRS limits. The amount converted is included in taxable income for the year.||
A Roth IRA cannot be converted to any other kind of IRA.