Comparing a Traditional and a Roth IRA
Traditional IRA |
Roth IRA |
|
---|---|---|
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 |
|
Annual Contribution Limits
|
|
|
Withdrawal Considerations
|
|
|
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Once you reach age 72, the IRS requires a specific, calculated amount, or Required Minimum Distribution (RMD), be withdrawn from your traditional IRA(s) each year.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:
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.