Which IRA is right for you?

FAQs

• How is a Roth IRA different from a traditional IRA?

  With a Roth IRA, you contribute money that's already been taxed (that is, "after-tax" dollars). Any earnings in a Roth IRA have the potential to grow tax-free as long as they stay in the account. Withdrawals of earnings from Roth IRAs are federal income tax-free and penalty-free if a 5-year aging period has been met and the account owner is age 59½ or over, disabled, or deceased. Roth IRAs are not subject to required minimum distributions (RMD) rules during the lifetime of the original owner, so you can leave your assets in the Roth IRA where they have the potential to continue to grow. Note that with a Roth IRA, you're able to withdraw contributions you've made at any time, for any reason, with no taxes or penalty.

  
  

  With a traditional IRA, contributions can be made on an after-tax basis, or a pre-tax (tax-deductible) basis if certain requirements are met. Any earnings in the traditional IRA are tax-deferred as long as they remain in the account. Withdrawals of pre-tax monies are subject to ordinary income tax when withdrawn. RMDs are required from traditional IRAs no later than April 1st of the year following the year in which you turn age 73. If you wait until April 1st, you will then be required to take your second distribution by the end of that year.

  
  

  For both types of IRAs, distributions before age 59½ may be subject to both ordinary income taxes and a 10% early withdrawal penalty.

• How can the IRA Contribution Calculator help me?

  Answer a few questions in the IRA Contribution Calculator to find out whether a Roth or traditional IRA might be right for you, based on how much you're eligible to contribute and how much you might be able to deduct on your taxes.

• If I qualify to contribute to both a traditional IRA and a Roth IRA, are there tax implications I should consider?

  Having a mix of both pretax and Roth contributions can help create additional flexibility in retirement to respond to a great unknown- future tax rates. For people who expect income in retirement to be as high or higher than their current level, others who expect their tax rate in retirement to be higher than today, or younger people who expect steady income growth over their careers, Roth IRA contributions may be the better choice. But if you believe that your tax rates will be lower in retirement than they are now, you may want to prioritize pretax vehicles like the Traditional IRA. Our IRA Contribution Calculator allows you to answer a few questions and find out which one might be right for you.

• How much can I contribute?

  The most you can contribute across all IRAs is either 100% of your earned income or the annual contribution limit - whichever is less. For 2024 and 2025, the annual contribution limit is $7,000. Once you reach age 50, contribution limits on IRAs increase by another $1,000. This allows for a "catchup" contribution for those nearing retirement.