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Financial Answer Center


IRAs (Individual Retirement Accounts)

The Traditional IRA vs. the Roth IRA

IMPORTANT NOTE: See the section Roth IRA Conversions to learn about Roth IRA conversions that may be available to you even if you do not meet the criteria for a Roth IRA.

The following chart illustrates the differences between the traditional IRA and the Roth IRA. Use the information to help you decide which IRA best suits your situation.

Traditional IRA

Roth IRA

Maximum annual contribution = $6,000 in 2020, $7,000 in 2020 for those reaching age 50 by December 31, 2020.

Maximum annual contribution = $6,000 in 2020, $7,000 in 2020 for those reaching age 50 by December 31, 2020.

If neither you nor your spouse is covered by a workplace retirement plan, the IRA contribution is fully deductible. If you or your spouse is covered by a workplace retirement plan, the IRA contribution deduction may be limited or completely phased-out.

Contributions are not deductible.

Anyone can establish a traditional IRA.

In order to establish a Roth IRA, your 2020 modified adjusted gross income, if filing a joint return, cannot exceed $206,000 ($203,000 in 2019) and $139,000 ($137,000 in 2019) for singles.

Contributions and earnings grow tax-deferred until withdrawal.

Contributions and earnings grow tax-free and withdrawals are tax-free, provided the IRA is held for at least five years and withdrawals begin after age 59½ or are due to death or disability, or for "first-time home buyers" subject to a $10,000 limit.

Contributions are not allowed after age 72 (70 ½ if you reach 70 ½ before January 1, 2020)

Contributions are allowed after age Contributions are not allowed after age 72 (70 ½ if you reach 70 ½ before January 1, 2020)

Withdrawals must begin at age 72 (70 ½ if you reach 70 ½ before January 1, 2020)

Withdrawals do not have to begin at age 72 (70 ½ if you reach 70 ½ before January 1, 2020)

Penalty-free withdrawals can be made for a qualifying first-time home purchase, subject to a $10,000 lifetime limit.

Provided the IRA is held for at least five years, penalty-free, tax-free withdrawals can be made for a qualified first-time home purchase, subject to a $10,000 lifetime limit.

Penalty-free withdrawals can be made for higher education expenses of the taxpayer, spouse, children, or grandchildren.

Penalty-free withdrawals can be made for higher education expenses of the taxpayer, spouse, children, or grandchildren.

 

 

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Securities and insurance products are offered through Osaic Institutions, INC., Member FINRA/SIPC. Osaic Institutions, INC. and FB Wealth Management, a division of First Bank, are not affiliated. We do not provide tax advice. Consult your tax advisor. NOT Bank Deposits NOT FDIC-Insured HAVE NO Bank Guarantee NOT Insured by any Federal Government Agency May Go Down in Value

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