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Roth vs. traditional IRAs: A comparison

Start simple, with your age and income. Then compare the IRA rules and tax benefits.

IRA eligibility


Is there an age limit?

ROTH IRA

You can contribute to a Roth IRA at any age.

TRADITIONAL IRA

You must be under age 70½ to contribute to a traditional IRA.


How does my income affect how much I can contribute?

ROTH IRA

The amount you can contribute to a Roth IRA:

  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).
  • Could be reduced—or even eliminated—based on your modified adjusted gross income (MAGI).
TRADITIONAL IRA

The amount you can contribute to a traditional IRA:

  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).

There are no additional restrictions based on your income.


Can minors or nonworking spouses contribute to an IRA?

ROTH IRA

Minors and nonworking spouses may be able to contribute, but check the special income rules first.

TRADITIONAL IRA

Minors and nonworking spouses may be able to contribute, but check the special income rules first.

IRA contribution rules


What are the contribution limits?

ROTH IRA

For the 2015 tax year:

  • If you're under age 50, you can contribute up to $5,500.
  • If you're age 50 or older, you can contribute up to $6,500.

Limits could be lower based on your income.

TRADITIONAL IRA

For the 2015 tax year:

  • If you're under age 50, you can contribute up to $5,500.
  • If you're age 50 or older, you can contribute up to $6,500.

Limits could be lower based on your income.


Can I claim my contribution as a deduction on my tax return?

ROTH IRA

You can't deduct your Roth IRA contribution.

TRADITIONAL IRA

You may be able to deduct some or all of your traditional IRA contributions. The deductible amount could be reduced or eliminated if you or your spouse is already covered by a retirement plan at work.


What's the deadline for making contributions in a given year?

ROTH IRA

The deadline is typically April 15 of the following year.

TRADITIONAL IRA

The deadline is typically April 15 of the following year.


How much money do I need to open a Vanguard IRA®?

ROTH IRA

You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR® Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

TRADITIONAL IRA

You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

IRA withdrawal rules


Will I pay taxes on withdrawals?

ROTH IRA

You'll never pay taxes on withdrawals of your Roth IRA contributions. And you won't pay taxes on withdrawals of your earnings as long as you take them after you've reached age 59½ and you've met the 5-year-holding-period requirement.

TRADITIONAL IRA

You'll pay ordinary income tax on withdrawals of all traditional IRA earnings and on any contributions you originally deducted on your taxes.


Is there a penalty for withdrawals taken before age 59½?

ROTH IRA

There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings.

TRADITIONAL IRA

With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.


ROTH IRA

Roth IRAs have no RMDs during your lifetime.

TRADITIONAL IRA

You must take your first RMD from your traditional IRA by April 1 of the year following the year you reach age 70½.

For each subsequent year, you'll need to take your annual RMD by December 31.

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REFERENCE CONTENT

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Modified adjusted gross income (MAGI)

An amount used to determine a taxpayer's IRA eligibility. Generally, it's the taxpayer's adjusted gross income calculated without certain deductions and exclusions.

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Minors

IRAs for minors can't be opened online and must be authorized by a parent or custodian.

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Minors

IRAs for minors can't be opened online and must be authorized by a parent or custodian.

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Special income rules

A nonworking spouse may still be able to contribute to an IRA as long as that person is filing a joint tax return with a working spouse. These are known as "spousal IRAs."

But the total amount contributed by both spouses can't exceed the amount of income earned by the working spouse or the IRS limits, whichever is less.

Minors may also be able to contribute to an IRA, but income limits are based on the minor's income, not the parents'.

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Special income rules

A nonworking spouse may still be able to contribute to an IRA as long as that person is filing a joint tax return with a working spouse. These are known as "spousal IRAs."

But the total amount contributed by both spouses can't exceed the amount of income earned by the working spouse or the IRS limits, whichever is less.

Minors may also be able to contribute to an IRA, but income limits are based on the minor's income, not the parents'.

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5-year holding period

The 5-year holding period for Roth IRAs starts on the earlier of the date you:

  • First contributed directly to the Roth IRA.
  • Rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA.
  • Converted a traditional IRA to the Roth IRA.

If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.

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Qualifying exceptions to the penalty tax

Distributions received before you're age 59½ may not be subject to the 10% federal penalty tax if they're:

  • Due to your disability or death.
  • Distributed to a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days.

Or if they're to be used for:

  • A first-time home purchase (lifetime maximum: $10,000).
  • Postsecondary education expenses.
  • Substantially equal periodic payments taken under IRS guidelines.
  • Certain unreimbursed medical expenses.
  • An IRS levy on the IRA.
  • Health insurance premiums (after you've received at least 12 consecutive weeks of unemployment compensation).
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Qualifying exceptions to the penalty tax

Distributions received before you're age 59½ may not be subject to the 10% federal penalty tax if they're:

  • Due to your disability or death.
  • Distributed to a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days.

Or if they're to be used for:

  • A first-time home purchase (lifetime maximum: $10,000).
  • Postsecondary education expenses.
  • Substantially equal periodic payments taken under IRS guidelines.
  • Certain unreimbursed medical expenses.
  • An IRS levy on the IRA.
  • Health insurance premiums (after you've received at least 12 consecutive weeks of unemployment compensation).
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Required minimum distributions (RMDs)

Most owners of traditional IRAs and employer-sponsored retirement plan accounts (like 401(k)s and 403(b)s) must withdraw part of their tax-deferred savings each year, starting at age 70½. If you withdraw less than the RMD amount, you may owe a 50% penalty tax on the difference. Roth IRAs have no RMDs during the owner's lifetime.