Individual Retirement Accounts, or IRAs, are basically savings plans with big tax breaks, making it an ideal way to save for your retirement. There are several different types of IRAs, including Roth IRAs, Traditional IRAs, SIMPLE IRAs, and SEP IRAs, each with their own tax implications and eligibility requirements.

What's the difference between a Traditional IRA and a Roth IRA?

Traditional IRA – The traditional IRA allows you to defer taxes on the earnings on your contributions until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which you make them.

Roth IRA – The Roth IRA allows only nondeductible contributions and features tax-free withdrawals for certain distribution reasons after a five-year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, if you expect to be in a higher tax bracket when you retire, you may benefit more from a Roth IRA than from traditional IRA.

Got questions? Give us a call today at 918-251-5371 and let us help you choose the right IRA for your needs.

  Roth IRA Traditional IRA
Tax Benefits Tax-free growth
Tax-free qualified withdrawals
Tax-deffered growth
Contributions may be tax-deductible
Eligibility Age Any age as long as you or your spouse has compensation and your modified adjusted gross income (MAGI) does not exceed certain prescribed limits. Younger than age 70 ½ for the entire tax year and you or your spouse have compensation.
Eligibility Income 2013 Joint Filers Full contribution: up to $178,000
2013 Partial contribution: $178,000-$188,000
No income limits to make contributions
Maximum Contribution 2013: $5,500 ($6,500 if you are 50 or older) or 100% of employment compensation, whichever is less 2013: $5,500 ($6,500 if you are 50 or older) or 100% of employment compensation, whichever is less
Withdrawal Penalties Distributions of regular and spousal contribution amounts are always free of penalty tax – regardless of timing or reason. You can withdraw assets from your traditional or Roth IRA without incurring the 10 percent premature-distribution penalty tax any time after you reach age 59 ½. You can avoid the penalty tax before age 59 ½ if you qualify for certain exceptions. 
Required Distributions You are not required to take distributions from your Roth IRA. When you reach your age 70 ½ year, you must begin to take minimum required distributions or risk additional penalty taxes.