Wealth Management Insight: The Best-Fitting IRA

By: Horizon Bank Last Updated: April 13, 2011

Mention the acronym “IRA” and most people think Individual Retirement Account. Did you know, however, that there are actually 11 types of IRAs? The most common IRAs include the Traditional and the Roth. For purposes of comparison, consider the following:

Traditional IRA

  • Contributions are limited to people under the age of 70 ½ who are earning an income.
  • Earnings grow tax-deferred until the time of withdrawal.
  • Withdrawals must begin and continue annually when the owner reaches age 70 ½.
  • Contributions are tax-deductible up to $5000 if you are age 49 or younger and up to $6000 if you are age 50 or older.
  • Total contributions at any age cannot exceed the taxpayer’s earned income.

Roth IRA

  • Contributions are not limited by age.
  • Contributions are not tax deductible.
  • Earnings accumulate tax free.
  • Annual contribution limits for a Roth are the same as those for a Traditional IRA.
  • Required Minimum Distributions (RMDs) do not apply to Roth IRAs.
  • Qualified distributions (listed below) are not subject to tax or penalty.
  • Made after taxpayer reaches age 59 ½ Made to a beneficiary after the taxpayer’s death
  • Made because the taxpayer is disabled
  • Made by a first-time homebuyer to acquire a principal residence

Qualified distributions cannot be claimed until contributions have been in a Roth account for a five-year period.

Determining which IRA is right for you can be a challenge. If you have questions or need advice, give us a call. We’re here to help you every step of the way.