What Do I Need to Know to Make a Roth IRA vs. Traditional IRA Choice?

The Roth IRA vs. the Traditional IRA

August 2015

When it comes to getting an early, smart start on retirement planning, the discussions often include considering a Roth IRA vs. a traditional IRA. Both can be great ways to save for retirement. But there are some key differences between the two offerings, as the table below shows.

Traditional IRARoth IRA
How It WorksThe contributions you make usually are tax deductible in the year that you make them. Taxes on the money earned in the IRA are deferred until you take money out in retirement.You don't get a deduction on contributions, but there are no taxes on the money earned in the IRA.
Who Can Contribute
  • Anyone under age 70 1/2 with taxable income (or a spouse with taxable income).
  • Note that there are limits on the tax deduction you can take if you or a spouse are covered by a retirement plan at work.
  • Anyone of any age with taxable income (or a spouse with taxable income).
  • Single filers with income of less than $116,000 or joint filers with income of less than $193,000 can contribute.
LimitationsContribution limits: $5,500 if under age 50; $6,500 if age 50 or older.Contribution limits: $5,500 if under age 50; $6,500 if age 50 or older.
Taking Money Out (Distributions)

If you take money out before age 59 1/2, you will have to pay a 10-percent penalty (with some exceptions for certain circumstances). Distributions taken during retirement after age 59 1/2 are taxed at your tax rate at that time.

You can take your original contributions out at any time, even before retirement, without paying more tax or a penalty.
You can take earnings out without tax or penalty if you are 59 1/2 or older and the money in the IRA has been there for at least five years. If you take money out otherwise, there is typically a 10 percent penalty.

Consult a qualified financial advisor to help you make the best decision for your retirement goals. Learn about the IRA accounts at Ally Bank by visiting Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559).

Ally Bank, member FDIC

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