An IRA should reflect your specific goals

Both types of IRAs offer advantages that can help you save for retirement. Which IRA you choose greatly depends on a few key factors, such as your taxes, earned income, and age.

A good place to start is to decide when you want to pay income taxes on your savings.

Clock

Roth: Pay taxes now

With a Roth IRA, you make after-tax contributions, so withdrawals are tax-free in retirement.

Calendar

Traditional: Pay taxes later

With a traditional IRA, your contributions may be tax-deductible, and you'll pay taxes when you make withdrawals in retirement.

Which IRA is right for you? Let's compare

EligibilityROTH IRATRADITIONAL IRA
Is there a minimum income limit?Yes. In addition to being subject to IRS limits (see details below), the amount of your contribution can't exceed the amount of income you earned that year.

This also applies to minors who want to start contributing to an IRA, with limits based on their own income, not their parents'.

Also, if you're married and filing a joint tax return, a spouse who isn't working may still be able to contribute to an IRA. But the total contribution for both spouses can't exceed the amount of income earned by the working spouse.
Yes. In addition to being subject to IRS limits (see details below), the amount of your contribution can't exceed the amount of income you earned that year.

This also applies to minors who want to start contributing to an IRA, with limits based on their own income, not their parents'.

Also, if you're married and filing a joint tax return, a spouse who isn't working may still be able to contribute to an IRA. But the total contribution for both spouses can't exceed the amount of income earned by the working spouse.
Is there a maximum income limit?Yes. Your modified adjusted gross income (MAGI) for the year may affect the amount you can contribute or—if high enough—make you ineligible.

For details—including instructions on how to calculate your allowable contribution—visit irs.gov.
No.
Does it matter how old I am?No. You can contribute at any age.Yes. You must be under age 70½ to contribute.
ContributionsROTH IRATRADITIONAL IRA
What's the deadline for making contributions in a given year?Typically April 15 of the following year.Typically April 15 of the following year.
How much money do I need to open a Vanguard IRA®?$1,000 for any of the Vanguard Target Retirement Funds or for Vanguard STAR® Fund.

$3,000 for most other Vanguard funds. (Some funds have higher minimum investment requirements.)
$1,000 for any of the Vanguard Target Retirement Funds or for Vanguard STAR® Fund.

$3,000 for most other Vanguard funds. (Some funds have higher minimum investment requirements.)
What's the maximum amount I can contribute each year?For the 2014 tax year:

  • If you're under age 50: $5,500.
  • If you're age 50 or older: $6,500.
Contributions may also be limited based on your income. See "Is there a maximum income limit?" above for details.
For the 2014 tax year:

  • If you're under age 50: $5,500.
  • If you're age 50 or older: $6,500.
There are no additional limits based on your income.
Can I deduct my contributions on my taxes?No.

Possibly—it depends on whether you or your spouse is already covered by a retirement plan at work.

If either of you are, the amount of your deduction, if any, will depend on your income.

For details, visit irs.gov:

If you are covered by a retirement plan at work

If you aren't covered by a retirement plan at work

WithdrawalsROTH IRATRADITIONAL IRA
Are there required minimum distributions?No, not during your lifetime.Yes, starting the year you reach age 70½.
Will I pay taxes on withdrawals?You'll never pay taxes on withdrawals of your 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 owned the account for at least 5 years.*
You'll pay ordinary income tax on withdrawals of all earnings and on any contributions you originally deducted on your taxes.
What's the penalty if I take a withdrawal before I reach age 59½?There are no penalties on withdrawals of your contributions.

There's a 10% federal penalty tax on withdrawals of earnings unless an exception applies.**
There's a 10% federal penalty tax on withdrawals of both contributions and earnings unless an exception applies.**

*The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you 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.

**Distributions received before you're age 59½ may not be subject to the 10% federal penalty tax if the distribution is due to your disability or death; is distributed by a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days; or is 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, or health insurance premiums (after you've received at least 12 consecutive weeks of unemployment compensation).

You may wish to consult a tax advisor about your situation.

Modified adjusted gross income
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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