This table will help you compare the key features of benefits of traditional and Roth IRAs.
You (or your spouse if filing a joint return) can contribute if you have taxable compensation (a salaried job, investments or other sources).
Prior to January 1, 2020, you couldn't contribute if you were age 70½ or older.
You (or your spouse if filing a joint return) can contribute if you have taxable compensation and your income level is under certain limits.
Single filer with MAGI of:
Joint filers with MAGI of:
Married, filing separately with MAGI of:
The total contribution you can make to all of your IRAs for 2020 is $6,000 or 100% of your compensation, whichever is less.
If you’re age 50 or older, you can make an additional contribution of $1,000, for a total of $7,000.
Same as traditional IRA, subject to phase-out range depending on MAGI as explained in Eligibility.
Single filer, covered by a retirement plan at work, with MAGI of:
Single filer, not covered by a plan at work:
Joint filer, covered by a plan at work, with MAGI of:
Joint filer, only a spouse is covered by a plan at work, with MAGI of:
Married, filing separately with MAGI of:
Roth contributions are not tax-deductible.
You can claim a nonrefundable tax credit for contributions if you are eligible.
The maximum credit allowed is 50% of the annual contribution amount up to $2,000, so long as your household income doesn’t exceed certain limits.
Joint filers with a MAGI of $65,000 or less in 2020 and single filers with a MAGI of $32,500 or less in 2020 qualify for the credit.
Same as traditional IRA.
Taxes are deferred until distributions are made; taxable distributions are treated as ordinary income.
Withdrawals of nondeductible contributions are not taxed.
Contributions are made with after-tax money; therefore, withdrawals from the contribution amount (basis amount) are tax-free.
Earnings grow tax-deferred until distributions begin. Distributions are taxed as ordinary income.
Qualified distributions are tax-free.
earnings are taxed as ordinary income and may be subject to a penalty.
Conversions: earnings are tax-free after the conversion amount satisfies the five-year investment period.
Conversion to a Roth IRA4: allowed, regardless of MAGI or tax filing status. The taxable portion of the converted amount will be treated as taxable income.
To employer-sponsored plans: pretax contributions can be rolled over to a 401(k) or to another qualified plan, as well as to 403(b) and 457(b) plans. However, the receiving plan must accept IRA rollovers.
From employer-sponsored plans: eligible pretax and after-tax distributions from qualified plans, as well as from 403(b) and 457(b) plans, can be rolled over.
From/to another Roth IRA: allowed.
From employer-sponsored plans: eligible Roth contributions and earnings in 401(k) and 403(b) plans can be rolled over. In addition, non-Roth balances can be rolled over. (See Conversions for more information.)
Distributions from contributions and earnings can be taken after age 59½ without federal tax penalty.
Mandatory withdrawals must begin no later than April 1 following the year you reach age 72.6
Distributions before age 59½ are subject to a 10% penalty tax unless you qualify for one of the following exceptions under section 72(t) of the Internal Revenue Code:
Effective for distributions made after December 31, 2019, certain distributions related to the birth or adoption of a child are exempt from the 10% early withdrawal penalty.
Distributions to your beneficiaries are also exempt from the 10% penalty.
Distributions from contributions can be made any time without taxes or federal tax penalty.
Distributions from earnings are tax-free if your initial contribution to the account was made at least five years ago and you meet one of the following conditions:
Payments made to your beneficiaries after the five-year period are also tax and penalty free. Payments made before the end of the five-year period are penalty free.
Distributions from earnings are not subject to the 10% penalty as long as you qualify for an exception — same as exceptions for traditional IRAs.
Distributions from a conversion amount must satisfy a five-year investment period to avoid the 10% penalty. This pertains only to the conversion amount that was treated as income for tax purposes.
You must begin taking RMDs no later than April 1 of the year following the year you turn 72.6
All of your IRA balances are aggregated for the purposes of calculating RMDs. Withdrawals may be taken from one or more IRAs.
No RMDs apply during your lifetime.
You can learn more about traditional and Roth IRAs in IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). We also encourage you to discuss your financial goals, eligibility and individual tax situation with your tax advisor or financial professional.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
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