3 Describe the difference between a Traditional IRA a Roth

3) Describe the difference between a Traditional IRA & a Roth IRA with respect to the following issues: Contribution Limits . Tax Deductibility . Tax Deferral . Required Minimum Distributions . Early Distributions

Solution

Thesr are the two types of individual retirement account-

1. Traditional IRA

2. Roth IRA

Differeces-

The contributions of traditional IRA are tax deductible whereas Roth IRAs provide no tax break for contributions, Roth IRA contributions are mad on after tax basis.

For traditional IRA , withdrawls are taxable whereas for Roth IRA, withdrawl of funds are tax free.

Traditional IRA have age restrictions and Roth IRA dont have age restrictions.

Traditional IRA require taxable withdrawals at age 70.5, whether there is a requirement of money or not, whereas Roth IRA dont require any withdrawals during the owner\'s lifetime.

Contributions to traditional IRA lower your taxable income.

Under traditional IRA , Under 59.5, one can withdraw up to $10, 000 from your account without the normal 10% early withdrawal penalty to pay for qualified expenseswhereas Roth IRA contributions can be withdrawn tax free.

Under Roth IRA, under 59.5, one can withdraw up to $10, 000 of Roth earnings penalty free

	Traditional IRA	Roth IRA
Age	Contribute until 70.5	Contribute at any age
Income	no affect on income about contributions	Income affects about how much contributions are made.
Tax	tax deductible contributions	tax free withdrawals and tax free growth
Early distribution	withdrawl before 59.5 yrs, there is a 10% penalty	withdrawal before 59.5, have to pay taxes on earnings plus 10% additional tax.