Comparing a Traditional and a Roth IRA

Traditional IRA

Roth IRA
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Tax benefits
 Tax-deferred earnings and potentially tax-deductible contributions1 Potentially tax-free earnings2
Eligibility
 Contribute at any age with earned income3 Contribute at any age with earned income
Income limits
 None to contribute
  • For single filers, less than $144,000 ($129,000 for full participation)
  • For married taxpayers filing jointly, less than $214,000 ($204,000 for full participation)
  • For married taxpayers filing separately, less than $10,000 (no income for full participation)

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    Annual Contribution Limits
  • $6,000; additional $1,000 per year if over age 50
  • Total Roth and traditional contributions cannot exceed limits

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  • $6,000; additional $1,000 per year if over age 50
  • Total Roth and traditional contributions cannot exceed limits

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    Withdrawal Considerations
  • IRS penalties for withdrawals before age 59 ½; some exceptions apply
  • Income tax paid on earnings and deductible contributions
  • No federal tax on nondeductible contributions
  • State tax may apply
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  • Tax-free withdrawal of contributions at any time
  • Tax-free withdrawal of earnings up to $10,000 for qualified expenses for first-time home purchases
  • IRS penalties for withdrawal of earnings before age 59 ½ for nonqualified expenses
  • Tax-free transfer of funds to beneficiaries
  • State tax may apply
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    Distribution requirements
    		 Must begin by age 724 None
    FDIC Insurance
    		 To legal maximum To legal maximum
    Funds in an IRA are FDIC insured to the legal maximum and are not subject to bank trustee fees.
    Once you reach age 72, the IRS requires a specific, calculated amount, or Required Minimum Distribution (RMD), be withdrawn from your traditional IRA(s) each year. If you have an IRA CD, the early withdrawal penalty will be waived for withdrawals that equal your RMD based on the total of your traditional IRA investments as of December 31 of the prior year. If you withdraw funds in excess of that amount outside of the CD grace period, an early withdrawal penalty will apply.
    We also offer simplified employee pension IRAs, or SEP IRAs, for our small business and self-employed clients.
    1 Participants in employer retirement plans qualify for deduction if income is less than:
  • $78,000 ($68,000 for full tax deduction) for single / head of household filers
  • $129,000 ($109,000 for full tax deduction) for married taxpayers filing jointly
    • Single filers / heads of household and married taxpayers filing jointly or separately with a spouse not covered by a retirement plan at work qualify for full deduction regardless of income. Those not covered by a retirement plan at work but married filing jointly with a spouse covered by a plan at work qualify for tax deduction if income is less than $214,000 ($204,000 for full deduction).
    2 Distributions from earnings are tax-free after age 59 ½ and holding period of five years. Under age 59 ½, tax-free withdrawal allowed after five-year holding period only if distribution is due to death or disability or for a first-time home purchase ($10,000 lifetime maximum).
    3 Effective for 2020 and later taxable years.
    4 Effective for distributions required in 2020 and later years by those who reach age 70 ½ in 2020 or a later year.
    This information is illustrative only, is subject to change, and is not intended to provide legal, tax or accounting advice. Please consult a qualified professional for advice tailored to your specific circumstances.
    The strategies in this document will often have tax and legal consequences. It is important to note that First Republic does not provide tax or legal advice. This information is provided to you as is, is not legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney or tax advisor. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information herein. Clients’ tax and legal affairs are their own responsibility. Clients should consult their own attorneys or tax advisors in order to understand the tax and legal consequences of any strategies mentioned herein.

     


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