Comparison of traditional IRAs and Roth IRAs
| Traditional IRA | Roth IRA | |
| What is the maximum annual contribution (2011)?* | Lesser of $5,000 or 100% of earned income ($6,000 if age 50 or older) | Lesser of $5,000 or 100% of earned income ($6,000 if age 50 or older) |
| What is the maximum annual contribution to a spousal IRA (for a spouse with little or no earned income) (2011)?* | Lesser of $5,000 or 100% of combined earned income ($6,000 if age 50 or older) | Lesser of $5,000 or 100% of combined earned income ($6,000 if age 50 or older) |
| Is your ability to contribute phased out for higher incomes? | No | Yes |
| Is your contribution tax deductible on your federal income tax return? | Yes. Fully deductible if neither you nor your spouse is covered by a retirement plan. Otherwise, your deduction depends on your income and filing status. | No. Contributions to a Roth IRA are never tax deductible. |
| How are earnings taxed? | Tax deferred | Tax deferred; tax free if you meet the requirements for a qualified distribution |
| Are distributions included in your taxable income? | Yes, to the extent that the distribution consists of tax-deductible contributions and investment earnings | Qualified distributions are completely tax free; otherwise, the portion that represents investment earnings is included in your taxable income |
| Are you required to take distributions during your life? | Yes, the required minimum distribution (RMD) rule applies after you reach age 70½ | No, distributions are not required until after your death |
| Can contributions be made after age 70½?*** | No | Yes, if you have earned income |
| Does a 10% early withdrawal penalty apply to distributions made before age 59½? | Yes, on the taxable portion of the distribution** | Yes, on the taxable portion of the distribution** |
| Includable in your taxable estate at death? | Yes | Yes |
| Do your beneficiaries pay income tax on distributions after your death? | Yes, to the extent that a distribution represents deductible contributions and investment earnings | Generally no, as long as the account has been in existence for at least five years |
*Note: Certain low- and middle-income taxpayers may be able to claim a partial income tax credit for amounts contributed to a traditional IRA or Roth IRA. The credit is phased out based on income.
**There are a number of exceptions to the early withdrawal penalty (e.g., distributions made due to qualifying disability). See Premature Distribution Rule (RT30-05-0500) for details. Special rules apply to amounts converted from a traditional IRA to a Roth IRA.
***Rollover contributions can be made regardless of age or earned income.