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Size up the basic IRA types

Roth and traditional IRAs overlap in some areas but go their own way in others. We can help you understand the differences.

Factors like your age, your income, and possible tax consequences may influence whether you choose a Roth or traditional IRA.

Key elements of a Roth IRA

Benefits

No taxes on withdrawals of contributions.

No taxes on earnings.*

No required minimum distributions (RMDs) for as long as you live.

No age limit to open the IRA or contribute to it.

Considerations

Eligibility and contribution amounts could be limited by your income.

Contributions can't be deducted.

Key elements of a traditional IRA

Benefits

Contributions may be tax-deductible.

Earnings grow tax-deferred.

Eligibility not limited by income.

Considerations

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.

RMDs must start at age 72 (age 70½ if you attained age 70½ before 2020).

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.

New guidance permits RMDs taken in 2020 from inherited IRAs to be rolled back into the inherited IRA the distribution came from, by August 31, 2020.

For more information about the rollover rules, go to irs.gov or consult a tax advisor.

A portion of your withdrawals may be taxable.

REFERENCE CONTENT

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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 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.

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Tax-deferral

Delaying the payment of income taxes on earnings generated in an investment account. For example, if you have a traditional IRA, you don't pay income taxes on the interest, dividends, or capital appreciation accumulating in the account until you begin making withdrawals.