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?
You can contribute to a Roth IRA at any age.
As a result of changes made by the SECURE Act, you can make contributions to a traditional IRA for 2020 or later regardless of your age. You cannot contribute to a traditional IRA for 2019 if you reached age 70½ or older in 2019.
How does my income affect how much I can contribute?
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).
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?
Minors and nonworking spouses may be able to contribute, but check the special income rules first.
Minors and nonworking spouses may be able to contribute, but check the special income rules first.
IRA contribution rules
What are the contribution limits?
For the 2020 tax year:
- If you're under age 50, you can contribute up to $6,000.
- If you're age 50 or older, you can contribute up to $7,000.
Limits could be lower based on your income.
For the 2020 tax year:
- If you're under age 50, you can contribute up to $6,000.
- If you're age 50 or older, you can contribute up to $7,000.
Limits could be lower based on your income.
Can I claim my contribution as a deduction on my tax return?
You can't deduct your Roth IRA contribution.
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?
The deadline is typically April 15 of the following year.
The deadline is typically April 15 of the following year.
How much money do I need to open a Vanguard 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.
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?
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.
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?
There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings.
With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.
Will I have to take required minimum distributions (RMDs)?
Roth IRAs have no RMDs during your lifetime.
The CARES Act provides a temporary waiver of RMDs for 2020 including any delayed 2019 RMD (if the 2019 RMD wasn't taken before January 1, 2020). If you would have had an RMD obligation for 2020, you do not have to take your RMD for 2020 (or delayed 2019 RMD) if you don't want to.
If you have already taken a withdrawal in 2020 that would have been an RMD (had RMDs not been waived), you may be eligible to roll the money over. All or a portion of a distribution already taken in 2020 (that would have represented an RMD, had RMDs not been waived) may be rolled over back into an IRA by August 31, 2020. Rollovers of RMDs taken in 2020 don't count toward the IRA one-rollover-per-365-days rule.
For more information about the rollover rules, go to irs.gov or consult a tax advisor.
You must take your first RMD from your traditional IRA by April 1 of the year following the year you reach age 72 (age 70½ if you attained age 70½ before 2020).
For each subsequent year, you'll need to take your annual RMD by December 31.
SELF-EMPLOYED OR OWN A SMALL BUSINESS?
You may be able to save even more with a SEP-IRA, SIMPLE IRA, or Individual 401(k).
REFERENCE CONTENT
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.
Minors
IRAs for minors can't be opened online and must be authorized by a parent or custodian.
Minors
IRAs for minors can't be opened online and must be authorized by a parent or custodian.
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'.
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'.
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.
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).
- Birth or adoption of a child (up to $5,000 per child distributed within 1 year of birth or adoption).
- A coronavirus-related distribution to a qualified individual (made on or after January 1, 2020 and before December 31, 2020).
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).
- Birth or adoption of a child (up to $5,000 per child distributed within 1 year of birth or adoption).
- A coronavirus-related distribution (CRD) to a qualified individual (made on or after January 1, 2020 and before December 31, 2020).
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 72 (age 70½ if you attained age 70½ before 2020). 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.