
Even if you are saving for retirement in your employer's plan, you can create your own personal pension plan through contributions to an IRA. Get started with a quick overview of the rules and potential benefits of a traditional IRA and a Roth IRA.
Traditional IRA
A traditional IRA can give you an up-front tax deduction and is always tax deferred.
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Eligibility includes anyone with an earned income. |
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Any earnings on the money you contribute grow tax-deferred. |
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The current contribution limit is $5,000 a year ($6,000 over age 50). |
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Contributions may be tax deductible if your employer does not offer a retirement savings plan or if you meet other eligibility requirements. |
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Withdrawals prior to age 59½ may trigger a 10% penalty tax. At age 70½, you'll be required to withdraw a minimum amount each year from your IRA, based on an IRS formula. If you miss a withdrawal, you could be subject to a substantial penalty. |
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A direct rollover of assets from an employer-sponsored plan is allowed. |
Roth IRA
A Roth IRA offers a different approach to tax savings: You can't deduct your contributions, but you can look forward to a lifetime of tax-exempt growth and tax-exempt withdrawals if you meet the Roth requirements.
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Historically limited to individuals with an adjusted gross income of $100,000 or less (no longer applies in 2010). |
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After-tax contributions offer tax-exempt growth and tax-exempt withdrawals. |
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Contribution limit is $5,000 a year ($6,000 over age 50). |
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No required minimum distributions. |
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Contributions may continue to be made, even after owner reaches age 70½. |
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Withdrawals prior to age 59½ may trigger a 10% penalty tax. |
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A direct rollover of assets from an employer-sponsored plan is not allowed. |
2010 changes to Roth rules could cause you to consider converting your traditional IRA assets to a Roth IRA. Want more information? Visit our Roth IRA Center for more details.