Basic Retirement Planning
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| | Comparison of Traditional IRAs and Roth IRAs | Traditional IRA | Roth IRA |
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Maximum yearly contribution (2024) | Lesser of $7,000 or 100% of earned income ($8,000 if age 50 or older) | Lesser of $7,000 or 100% of earned income ($8,000 if age 50 or older) |
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Income limitation for contributions | No | Yes |
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Tax-deductible contributions | Yes. Fully deductible if neither you nor your spouse is covered by a retirement plan. Otherwise, your deduction depends on your income and filing status. | No. Contributions to a Roth IRA are never tax deductible. |
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Age restriction on contributions | No | No |
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Tax-deferred growth | Yes |
Yes; tax free if you meet the requirements for a qualified distribution. |
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Required minimum distributions during lifetime | Yes. Distributions must begin by April 1 following the year you reach age 73. | No. Distributions are not required during your lifetime. |
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Federal income tax on distributions | Yes, to the extent that a distribution represents deductible contributions and investment earnings. | No, for qualified distributions. For nonqualified distributions, only the earnings portion is taxable. |
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10% penalty on early distributions | Yes, the penalty applies to taxable distributions if you are under age 59½ and do not qualify for an exception. | No, for qualified distributions. For nonqualified distributions, the penalty may apply to the earnings portion. (Special rules apply to amounts converted from a traditional IRA to a Roth IRA.) |
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Includible in taxable estate of IRA owner at death | Yes | Yes |
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Beneficiaries pay income tax on distributions after IRA owner's death | Yes, to the extent that a distribution represents deductible contributions and investment earnings. | Generally no, as long as the account satisfies the five-year holding requirement. |
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