What are the differences between a Traditional IRA and a Roth IRA?
Traditional IRA
A traditional IRA is an Individual Retirement Account that allows you to put away money for your retirement and have the earnings accumulate tax-deferred until withdrawal, providing you with an opportunity for greater savings.
Roth IRA
A Roth IRA is a retirement account that allows you to put away money for your retirement and have the earnings grow tax free. Contributions to the account are not tax-deductible. However, after meeting certain age and time requirements, redemptions of both principal and earnings are completely tax-free.
Deductibility of Contributions
Your contribution to a Traditional IRA may or may not be tax-deductible based on your income level and any participation in a retirement plan where you work. Your contribution to a Roth IRA is never tax-deductible.
Eligibility
Anyone with an earned income under the age of 70 and 1/2 may contribute to a Traditional IRA. There is no age limit for Roth contributions. However eligibility is phased out based on your Adjusted Gross Income. Roth contributions must also come from earned income.
Taxation of Distributions
Distributions from a Traditional IRA are taxed except for any original contributions that were not tax-deductible. Earnings on the Traditional IRA are tax-deferred until time of distribution. Assuming age and other requirements are met, distributions of both principal and earnings from the Roth IRA are tax-free.
Mandatory Distributions
Distributions from a Traditional IRA are mandatory beginning the year a person turns 701/2. There are no mandatory distributions from a Roth IRA.