Roth Vs Traditional IRA( Highlights) 2007/2008 |
Feature |
Traditional IRA |
Roth IRA |
Age requirement |
Any individual can contribute to a traditional IRA, providing the individual will not be age 70 ½ or older in the year for which the contribution is being made. |
There is no age limitation for Roth IRA contributions |
Compensation requirement |
Contributions must be based on taxable compensation received for the year. For purposes of making an IRA contribution, compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. |
Compensation limitation |
No limit on compensation |
Individuals with MAGI of the following amounts and above are ineligible to contribute to a Roth IRA: [2007- Single-$114,000; Married filing jointly $166,000; Married filing separately-$10,000]- [2008-Single-$116,000; Married filing jointly $169,000; Married filing separately-$10,000] |
Contribution limit |
Year |
Amount |
Year |
Amount |
2002 to 2004 |
$3,000 |
2002 to 2004 |
$3,000 |
2005 to 2007 |
$4,000 |
2005 to 2007 |
$4,000 |
2008 and after |
$5,000 (indexed for COLA) |
2008 and after |
$5,000 (indexed for COLA) |
Catch-up Contribution |
Year |
Amount |
Year |
Amount |
2002 to 2005 |
$500 |
2002 to 2005 |
$500 |
2006 and after |
$1,000 |
2006 and after |
$1,000 |
Contributions are limited to the lesser of 100% of the individual’s compensation, or the dollar limits indicated above. |
Deductibility |
Contributions are deductible if the individual is not an active participant, and/or is not married to an active participant. If the individual is an active participant or married to an active participant, the ability to deduct the contribution is based on the individuals MAGI and tax filing status. |
Contributions are not deductible. |
Earnings Treatment |
Earnings accrue on a tax-deferred basis, and taxed as ordinary income when distributed. |
Earnings accrue on a tax-deferred basis, but distributions are tax-free if qualified |
Distributions |
Distributions are treated as ordinary income. A 10% excise tax applies to amounts distributed before the IRA owner reaches age 59 ½, unless an exception applies. |
Distributions are treated as ordinary income, but will be tax-free if qualified. A 10% excise tax applies to amounts distributed before the IRA owner reaches age 59 ½, unless an exception applies. |
Required minimum distribution (RMD) |
Must begin for the year the individual reaches age 70 ½. RMD rules also apply to beneficiaries. |
Does not apply to owner, which allows for more accumulation and tax deferral.
Applies to beneficiaries. |
Penalties |
- A 6% excise tax on contributions that exceed the limits indicated in the chart
- 50% excess accumulation penalty on any RMD shortfall
- A 10% excise tax on taxable amounts withdrawn before the IRA owner reaches age 59 ½, unless an exception applies.
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- A 6% excise tax on contributions that exceed the limits indicated in the chart
- 50% excise tax on any RMD shortfall. Applies to beneficiaries only
- A 10% excise tax on taxable amounts withdrawn before the IRA owner reaches age 59 ½, unless an exception applies.
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