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Frequently Asked IRA Questions

   Personal IRAs | Frequently Asked Questions

What's the difference between a Traditional IRA vs. Roth IRA?

Traditional IRA
A Traditional IRA is the IRA originally chartered by the U.S. government. There are two primary benefits of a Traditional IRA.
  1. The earnings of the IRA are tax deferred until withdrawn.
  2. For many taxpayers, the contributions to the IRA are tax deductible.
Roth IRA
A Roth IRA is a more recent form of a retirement savings plan. The principal benefit of a Roth IRA is that all earnings will accumulate tax-free if the withdrawal meets the qualifications of a qualified distribution.

Traditional vs. Roth IRA

Differences at a glance:

Traditional IRA Roth IRA
Tax deductible contributions for qualified investors Contributions are not tax deductible
No tax-free withdrawals Tax-free withdrawals for qualified distributions or distributions of "basis" (contributions) only
Withdrawal penalty of 10% if you are under the age of 59½ (Some exceptions apply.) Withdrawal penalty of 10% on earnings if you are under the age of 59½ (Some exceptions apply. Must also meet Roth IRA five-year aging requirement.)
Eligibility under age 70½ with earned compensation No age restriction as long as you have earned compensation
Mandatory distributions must begin at age 70½ No mandatory distributions

What are the Modified Adjusted Gross Income (MAGI) limits for Roth IRAs?

If your MAGI is at or above the limits, you may not make a contribution to your Roth IRA, regardless of your age. Partial contributions allowed if your income is between:

  Roth IRA Roth IRA
  2016 Income Limits 2017 Income Limits
Single $117,000-$132,000 $118,000-$133,000
Married, filing separately $0-$10,000 $0-$10,000
Married, filing jointly $184,000-$194,000 $186,000-$196,000

No Roth IRA contributions allowed if your income exceeds maximum shown above.

How much can I contribute annually to my IRA?

For the tax years 2016 and 2017, contributions of new dollars to an IRA are limited to $5,500 or 100 percent of earned income, whichever is less. Up to $5,500 per year can be deposited to either a Traditional or a Roth, or split between the two; but no more than $5,500 between the two. Transfers and rollovers are limited to the amount that was withdrawn from the previous IRA (or qualified plan).
(Note: Individuals age 50 or older can contribute up to $6,500 or 100% of earned income – whichever is less – for tax years 2016 and 2017.)

How and when may I make a withdrawal from my IRA?

You may withdraw from a Traditional IRA at any time. You may, however, be subject to government and financial institution withdrawal penalties. Withdrawals may also be subject to income tax. You must take a Required Minimum Distribution (RMD) from your Traditional IRA each year, starting for the year in which you turn age 70½. You may withdraw your contributions from your Roth IRA at any time with no government penalty. Please see IRS Publication 590-B for details.

What are the penalties for making an early withdrawal?

The government penalty for withdrawing from a Traditional IRA prior to age 59½ is 10 percent. The type of investment you choose may also have a withdrawal penalty if you withdraw within a certain period of time (for example, Certificates of Deposit). The 10 percent government penalty is waived under certain conditions.

Please see IRS Publication 590-B for details on the withdrawal rules related to a Traditional vs. Roth IRA.

What are other possible benefits of having an IRA?

  • EGTRRA provisions were made permanent (e.g., catch-up contributions and saver's credit)
  • Cost-of-living adjustments, increasing the income limits for taking IRA deductions
  • Penalty-free distributions from IRAs for certain qualified guardsmen and reservists
  • Non-spouse beneficiaries may set up a Direct Rollover of plan assets from a Workplace Retirement Plan (e.g., 401(k), QRP) to an Inherited IRA
  • Income tax refunds can be paid directly to IRAs

    Beginning in 2009, you are able to roll your qualified plan funds directly to a Roth IRA. (Important Note: This action is a taxable event.)

Contact Us

For answers to your other IRA questions, or for more information on a Traditional vs. Roth IRA, please contact our IRA Department at 1-800-231-8193 and listen carefully to the options.
The information, education and general descriptions contained herein are provided solely for informational and educational purposes. This material is not intended to be viewed or construed as a suggestion for you to take (or refrain from taking) a particular course of action or as the advice of an impartial fiduciary. This information should not be viewed as individual tax, financial or investment advice. Please consult your tax and/or financial adviser for information and advice specific to your individual circumstances.