With a traditional IRA, you may get double tax benefits: You’re often able to deduct your contributions from your taxable income and the interest grows tax-deferred. That means you don’t have to pay taxes on your investment earnings until you request a distribution—and at that time, you may be in a lower tax bracket.
With a Roth IRA, your earnings and withdrawals grow tax-free. That is, when you withdraw your money, you may not have to pay taxes! Plus, after you’ve owned the account for five years, you can request a distribution of your money anytime after age 59½.
|Traditional IRA||Roth IRA|
Age limit to contribute
Under 70 1/2
Can't exceed annual income for Modified Adjusted Gross Income (MAGI) limits
Contributions may be tax-deductible
Pay taxes on distributions
No (as long as all requirements are met)
Penalties on distributions before age 59 1/2
Yes, a 10% federal penalty tax
A 10% federal tax penalty on interest earned
Required minimum distributions (annually beginning at age 70 1/2)