Roth IRA Vs. Individual IRA

If you are shopping for a retirement savings account, you’re likely to encounter many options, including various types of individual retirement accounts. Although a traditional IRA and a Roth IRA both offer tax advantages as you save for retirement, they have a number of differences that you’ll want to keep in mind.


The primary difference between a traditional IRA and a Roth IRA concerns how the government taxes your nest egg. Contributions to a traditional IRA are tax-deductible up to an annual limit set by the IRS. Contributions to a Roth IRA are not tax-deductible. Your Roth IRA makes investments and grows your money just as a traditional IRA, but you can withdraw contributions from the account without incurring any additional taxes. In short, a traditional IRA requires that you pay taxes on your retirement funds when withdrawing money, and a Roth IRA requires that you pay taxes on the funds before contributing them.

Age Concerns

If you have a traditional IRA, according to CNN Money, the U.S. government requires that you begin taking withdrawals from your retirement account once you reach age 70 1/2. If you have a Roth IRA, you are not subject to mandatory distributions; instead, you may leave funds in your retirement account as long as you like, even passing them on to your heirs. Similarly, you may continue to make contributions to a Roth IRA as long as you wish. Traditional IRAs do not allow contributions after you reach age 70 1/2.


Aside from taxation at the time of distribution, there are few limits to a traditional IRA. If you have a high salary, though, you may be subject to certain limitations under a Roth IRA plan. Roth IRAs are only available to single tax filers making less than $127,000 per year as of 2013, and single filers with taxable income greater than $112,000 are subject to certain additional limitations. If you are married and have an adjusted gross income of more than $188,000 per year as of 2013, you cannot qualify for a Roth IRA; similarly, you may be subject to additional limitations if your AGI is higher than $178,000. Regardless of the type of IRA you have, you may only contribute the lesser of $5,500 per year or your total compensation as of 2013.


Under both traditional and Roth IRAs, your funds can grow tax-free while invested. Because you have already paid taxes on your contributions to a Roth IRA, you may withdraw them at any time without penalty. In most cases, however, if you withdraw funds from a traditional IRA before you reach age 59 1/2, you will pay your standard tax rate plus an early distribution penalty of 10 percent.

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About the Author

Keith Evans has been writing professionally since 1994 and now works from his office outside of Orlando. He has written for various print and online publications and wrote the book, "Appearances: The Art of Class." Evans holds a Bachelor of Arts in organizational communication from Rollins College and is pursuing a Master of Business Administration in strategic leadership from Andrew Jackson University.