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Retirement

Traditional IRA vs. Roth IRA

Opening an IRA is a great way to save for your retirement. Whether to open a Traditional or a Roth IRA is an important decision with different tax consequences. In short, contributions to a Traditional IRA may be tax deductible and can grow tax deferred. Roth IRA contributions are not tax deductible, but they have the potential to grow tax free.

What is a Traditional IRA?

  • You or your spouse (Married Filing Jointly) must have earned income in order to contribute
  • Contributions may be tax deductible, depending on your income level and your participation in an employer retirement program
  • Taxes are paid on contributions and earnings when withdrawn
  • Withdrawals taken before age 59 ½ are subject to a 10% penalty (certain exceptions apply)
  • Mandatory withdrawals are required beginning at age 70 ½. Contributions must stop at that time.

What is a Roth IRA?

  • You or your spouse (Married Filing Jointly) must have earned income in order to contribute
  • Contributions are not tax deductible
  • Income limits apply: available to single-filers with an annual modified adjusted gross income (MAGI) of $136,999 or less; or married couples filing jointly with an annual combined MAGI of $202,999 or less
  • No mandatory distribution age
  • All principal and earnings are withdrawn tax free, if certain regulations are followed
  • Contributions (not earnings) can be withdrawn at any time without penalty, subject to some minimal conditions

What is the maximum contribution limit for 2019 / 2020?*

You must have earned income in order to contribute to either a Traditional or a Roth IRA. For 2019 and 2020, the maximum contribution limit is the lesser of the amount of your taxable income or $6,000. If you are age 50 or over, the maximum contribution limit is the lesser of the amount of your taxable income or $7,000.

Which type of IRA is right for me?

To determine which type of IRA works best for your tax situation, it may benefit you to speak to a competent tax professional.

Where can I open an IRA?

Both Tradition and Roth IRAs can be opened at a bank, brokerage or mutual fund company [contact Weitz Investments at (800) 304-9745].

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