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Choosing Between Traditional and Roth IRA Guide

How to Choose Between Traditional and Roth IRA

Based on 2017 tax year.

When choosing between a Traditional IRA and a Roth IRA, some of the key aspects to consider include income limits, tax incentives, withdrawal rules, and other specific rules and benefits.

Income Limits

1. Is there an age restriction for contribution?

a. Traditional IRA: Anyone with earned Income younger than age 70 ½ can contribute.

b. Roth IRA: No age restriction.

2. Is the contribution tax deductible?

a. Traditional IRA: Yes. However, eligibility for the tax deduction depends on your income and whether you or your spouse (if you’re married) are covered by a retirement plan with your job (i.e. 401(k)). For further detail please see the 2017 IRA Deduction Limits – If already covered by a retirement plan at work.

b. Roth IRA: No. Contributions are not tax deductible.

3. Is there an income-eligibility restriction? If so, how does that affect the contribution?

a. Traditional IRA: No. Contributions to a Traditional IRA are not limited by annual income.

b. Roth IRA: Yes. Contributions to a Roth IRA are affected by your filing status and the amount of your modified adjusted gross income (MAGI). For example, if you are single you must have a MAGI less than $133,000 in order to contribute to a Roth IRA. (Please note: contribution limits begin to phase out starting with a MAGI of $118,000.) Married couples filing a joint return must have a MAGI less than $196,000 in order to contribute to a Roth IRA. (Please note: contribution limits begin to phase out starting with a MAGI of $186,000.)  For further details, please see the IRS guidelines for the Amount of Roth IRA contributions.

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