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TRADITIONAL IRA VS. ROTH IRA

Traditional IRA

• With a traditional IRA, you might be able to deduct your contribution from your taxable income, thus reducing current federal income taxes. This depends on your income and whether you are covered by a retirement plan at work. While your money grows, taxes are deferred. You will be subject to federal income taxes when you withdraw the money, generally at retirement.

Roth IRA

• With a Roth IRA, you cannot deduct your contribution from your income for federal income tax purposes. However, qualified withdrawals of contributions and earnings are free of federal income tax and penalties.

• Any individual under age 70½ with earned income is eligible.
• Qualified individuals under age 50 may contribute a maximum of $5,500 for 2013.
• For married couples filing jointly where only one spouse has earned income, $11,000 for 2013 may be split between a spousal IRA and an individual IRA with no more than $5,500 being deposited in either account.
• Taxpayers age 50 or older by Dec. 31 can make an additional $1,000 contribution.
• Contributions might be deductible from your taxable income for federal income tax purposes depending on how you file your income tax return, whether you and your spouse participate in a retirement plan at work, and the amount of your modified adjusted gross income (MAGI). Even if you cannot deduct an IRA contribution from your income, you still may contribute if you have earned income.
• Generally, money distributed to you from your IRA before age 59½ is subject to federal income tax and a 10-percent penalty.
• Withdrawals can be made without penalty for certain qualified distributions, which include:
• distributions taken as an annuity income stream as defined by the IRS;
• distributions taken for qualified first-time homebuyer expenses (subject to a lifetime limit of $10,000);
• distributions taken because of a qualified disability as defined by the IRS;
• distributions taken for qualified unreimbursed medical expenses as defined by the IRS;
• distributions taken for qualified education expenses;
• distributions taken for medical insurance premiums if the account owner is unemployed;
• distributions taken after the owner’s death as defined by the Internal Revenue Code;
• qualified, nontaxable rollovers; and
• distributions taken for qualified reservist distributions.
• Mandatory withdrawals are required at age 70½.

• Any individual with earned income is eligible, regardless of age.
• Qualified individuals under age 50 may contribute a maximum of $5,500 for 2013. Contributions are phased out for individuals with modified adjusted gross income (MAGI) exceeding certain limits.
• For married couples filing jointly where only one spouse has earned income, $11,000 for 2013 may be split between a spousal Roth IRA and an individual Roth IRA with no more than $5,500 being deposited in either account.
• Taxpayers age 50 or older by Dec. 31 can make an additional $1,000 contribution.
• Contributions are not deductible for federal income tax purposes. However, qualified withdrawals of contributions and earnings are free of federal income tax and penalties.
• Contributions and earnings are eligible for access as qualified withdrawals if the account has been open at least five years and one of the following occurs:
• You have reached age 59½ by the time of the withdrawal.
• The withdrawal is made because of a qualifying disability.
• The withdrawal is made for first-time homebuyer expenses ($10,000 lifetime limit).
• The withdrawal is made by your beneficiary or estate after your death.
• The withdrawal is taken as an annuity income stream as defined by the IRS.
• The withdrawal is made for qualified unreimbursed medical expenses as defined by the IRS.
• The withdrawal is made for medical insurance premiums if the account owner is unemployed.
• The withdrawal is taken for qualified education expenses.
• The withdrawal is taken for a qualified reservist distribution.
• All other types of withdrawals generally are subject to federal income taxes and a 10-percent penalty on the amount of earnings withdrawn.
• There is no mandatory requirement to withdraw money during a Roth IRA owner’s lifetime.

Other Investment Options

Deferred Annuity

• All individuals, even those who do not have earned income, are eligible to make contributions to a deferred annuity. Earnings on contributions grow tax-deferred.
• Earnings taken from the deferred annuity prior to age 59½ generally are subject to taxes and a 10-percent penalty.

Taxable Accounts

• All individuals, even those who do not have earned income, are eligible to save in a taxable account.
• A taxable account can be opened and its account balance invested in mutual funds, individual securities offered through a brokerage firm, and certificates of deposit (CDs). All account earnings are taxable in the year they are earned.

Thrift Savings Plan (TSP)

• Servicemembers have another tax-advantaged option — the government-sponsored TSP, similar to the civilian 401(k) plan.
• You may contribute any whole percentage of your basic pay, bonus pay, incentive pay, or special pay, before federal income taxes, up to $20,500.
• If you are receiving tax-exempt pay, your contributions from that pay also will be tax-exempt; however, the earnings will be taxed when you take a withdrawal.
• Federal income taxes are deferred on contributions and until they are withdrawn at retirement for traditional contributions.