Individual Retirement Accounts (IRAs)

Choose the IRA that’s right for you

A tax-advantaged Individual Retirement Account (IRA) is a great way to save for retirement. It can provide tax deductions, the potential for tax-sheltered long-term growth, and an opportunity to save above and beyond what you may contribute to an employer-sponsored plan.

There are two primary types of IRAs: traditional and Roth. One or the other may be right for you, depending on your circumstances.

The differences between traditional and Roth IRAs

Both traditional and Roth IRAs let your retirement savings grow tax-deferred. But there are several key differences that might make one more appropriate for you than the other.

  • Traditional IRA—Contributions to a traditional IRA are tax-deductible depending on your income and whether you participate in an employer-sponsored plan such as a 401(k). Your earnings can grow tax-free but are taxed as ordinary income when you withdraw them. 
  • Roth IRA—There’s no up-front tax deduction for a contribution to a Roth, but you can withdraw the earnings income tax free at age 59 ½ if you’ve held the Roth for five years. There are also maximum income qualifications for contributing fully to a Roth IRA that vary from $114,000 to $129,000 for singles and $181,000 to $191,000 if you’re married filing jointly for the 2014 tax year.

How to decide:

  • Consider a traditional IRA if you qualify for the up-front deduction and think your tax bracket will be much lower when you retire than it is today.
  • Choose a Roth IRA if you think your tax bracket will be higher when you retire—an important consideration if you haven’t yet reached your peak earning years.
Our Two Cents
You can also convert all or a part of a traditional IRA to a Roth IRA. You pay taxes on the amount converted, but after that, no taxes are due. This conversion can make the most sense if you believe that you will be in a higher tax bracket when you eventually withdraw the funds.

What you can contribute

If you have earned income, you can contribute up to the maximum annual contribution. Annual contribution limits are the same for traditional and Roth IRAs:

  • For tax year 2014, you can contribute a maximum of $5,500.
  • If you’re 50 or older, you can make an additional $1,000 catch-up contribution for a total of $6,500.

When you can withdraw your money

To discourage people from withdrawing their money too early, there are taxes and penalties associated with early withdrawal, depending on the type of IRA. See the chart below.

Compare IRAs before choosing the one that's right for you.

Other IRAs

Depending on your circumstances, you may also want to consider one of the following accounts, all of which can be either a traditional or Roth IRA:1
  • Rollover IRA—If you’ve changed jobs or retired and have retirement assets at a former employer
  • Spousal IRA—If your spouse is not currently working but wants to contribute to an IRA
  • Custodial IRA—If you want to establish a retirement account for a minor
  • Inherited IRA—If you're the beneficiary of an IRA and want to preserve the tax-deferred status of the account
Our Two Cents
Think you can’t come up with the maximum IRA contribution each year? Consider this: It takes just $15.06 a day to contribute the current $5,500 per year maximum to an IRA.


1.In the eyes of the IRS, there are only two types of IRAs: traditional and Roth. All other terms, such as "rollover IRA," "custodial IRA" or "non-deductible IRA" are simply unofficial terms that describe either a traditional or Roth IRA.

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