Roth IRA vs. Traditional IRA

	Traditional IRA	Roth IRA
Who can contribute?	Anyone with earned income to age 70½	Anyone with earned income at ANY AGE, subject to maximum income limitations
How much can each individual contribute?	To $5,000 of earned income each year	To $5,000 of earned income each year
Individuals age 50 or older:	An additional $1,000 if you are 50 or older by the end of the year	An additional $1,000 if you are 50 or older by the end of the year
Tax-Deferred Growth?	Yes	Yes
Use with most any type investment?	Yes	Yes
Taxable Distributions after age 59½?	Yes	No - not if later than 5 years after the account is opened
Tax-Free Withdrawals?	No	Yes - after age 59½ and is 5 years after the account is opened
10% Penalty on Withdrawals?	Prior to age 59½	Prior to age 59½ or within the 1st 5 years the account is opened and only on the earnings in excess of total contributions
Mandatory Withdrawals Start at:	age 70½	NEVER unless certain exceptions apply
Can children inherit the account Income-Tax Free?	No - must pay income tax	YES
Use for Higher Education Penalty-Free?	Yes - but will pay appropriate income tax on the distribution	Yes - but will pay appropriate income tax on the distribution prior to age 59½
Use for First Time Home Purchase Penalty-Free (anyone who hasn't owned a home in the past 2 years)?	Yes - up to $10,000 - must pay appropriate income tax on the distribution	Yes - up to $10,000 - must pay appropriate income tax on the distribution prior to age 59½
In general, are qualified distributions considered as part of one's Adjusted Gross Income? Can this reduce one's Social Security?	Yes / Yes	No! / No!
Tax-Deductible Contributions?	Yes, but only: When not participating in a qualified plan with employer, or, when participating in qualified employer plan and BELOW CERTAIN INCOMES (see chart below)	No A Roth IRA is ALWAYS non-deductable

Factoid: For each dollar you contribute to any other type of IRA, you must reduce your maximum contribution limit to your Roth IRA by that amount!!

2010 Deductibility Phase-Out Ranges for Traditional IRAs (when NOT covered by an employer's qualified plan)
if you have taxable compensation and your filing status is ...	AND your modified AGI is ...	THEN you can take...
... married filing jointly or separately with a spouse who is NOT covered at work, qualifying widow(er), single, or head of household	any amount	a full deduction up to the amount of your contribution limit
... married filing jointly with a spouse who IS covered at work	$167,000 or less	a full deduction up to the amount of your contribution limit
	more than $167,000 but less than $177,000	the amount you can deduct is reduced as your income increases*
	$177,000 or more	you cannot deduct any of your contribution
...married filing separately and not living with your spouse at anytime during the year	any amount	a full deduction up to the amount of your contribution limit

For 2010 You are Eligible to Participate in a Roth IRA IF:
you have taxable compensation and your filing status is ...	AND your modified AGI is ...	THEN ...
... married filing jointly or qualifying widow(er)	less than $167,000	you can contribute up to $5,000 ($6,000 if age 50 or older)*
	at least $167,000 but less than $177,000	the amount you can contribute is reduced as your income increases*
	$177,000 or more	you cannot contribute to a Roth IRA.
...married filing separately AND you lived with your spouse at any time during the year	zero (-0-)	you can contribute up to $5,000 ($6,000 if age 50 or older)*
	more than zero (-0-) but less than $10,000	the amount you can contribute is reduced as your income increases*
	$10,000 or more	you cannot contribute to a Roth IRA.
...single, head of household, or married filing separately AND you lived with your spouse at any time during the year	less than $105,000	you can contribute up to $5,000 ($6,000 if age 50 or older)*
	at least $105,000 but less than $120,000	the amount you can contribute is reduced as your income increases*
	$120,000 or more	you cannot contribute to a Roth IRA.

*See IRS Publication 590 for a more complete description

Beginning in 2010, the income limit on one's eligibility to convert their qualified plan to a Roth IRA will be eliminated. This means that, no matter what one's income level may be, they will be eligible to convert their existing Traditional IRA's, 401(k)'s, etc. over to a Roth IRA. This has NO effect on ones eligibility to make new contributions to a Roth IRA. Eligibility to CONTRIBUTE is still determined by one's AGI. However, there is now a "Go Around" on having one's eligibility to contribute to a Roth phased out because of one's income levels. Since there will no longer be an income limit preventing people to convert to a Roth, one may make contributions to a non-deductible Traditional IRA and then convert that IRA over to a Roth without incurring a taxable event, no matter what amount of income they earn!

Before you decide to do that though, make sure you consult a tax professional. If you have multiple IRA's and they are a mix of deductible IRA's and non-deductible IRA's and you make a conversion to a Roth, you will have to determine the percentage you have invested in each type of IRA. This percentage will be applied to the conversion you make to determine what portion of that conversion is taxable. For those who do not currently have an existing IRA, this complication is removed, making it fairly easy to contribute to a non-deductible Traditional IRA and convert it to a Roth as a non-taxable event, no matter what one's income level!

(This page is for information purposes only and is based on our current understanding of the 1997 and subsequent changes to tax law. For tax advice, consult your tax accountant or tax planner. Above comparisons concerning withdrawals or distributions are generally considered as qualified distributions, unless otherwise stated, and may be subject to exceptions. Please understand that U. S. tax code is extensive and there may be exceptions to any statement above, but all statements are believed to be true, in general.)