IRAs are excellent vehicles to help prepare for your eventual retirement. Whether you plan on traveling the world, relaxing at home with the ones you love or, simply cutting back on your work week, your IRA is a great way to save towards your goal.
IRAs provide you with valuable tax benefits; including the ability to defer or even avoid taxation on your investment earnings. By allowing your savings to grow in a tax-deferred environment, your earnings compound over time – without being taxed, further helping you reach your retirement goals. If you have a Roth IRA, you may be able to withdraw your account completely tax-free (provided you make a qualifying withdrawal).
How do traditional and Roth IRAs compare?
|Description||Contributions may be fully or partially deductible from your personal tax return, depending on your circumstances. Generally, amounts in a traditional IRA (including earnings and gains) grow tax deferred, meaning account earnings and contributions are only taxed when you withdraw funds.||Allows you to make contributions on a post-tax basis, up to a specified amount each year (determined by the IRS). Because you’ve already paid income taxes on the money you contribute, withdrawals of account earnings and contributions after age 59 1/2 are generally tax-free (other restrictions and exceptions may apply).|
|Eligibility||Your or your spouse must have earned income||Your must have earned income less than $124,000 if filing single tax status), $196,000 if married filing jointly (2020 tax-year figures, both adjusted annually)|
|Age Limit?||Beginning in 2020 you can make contributions at any age||Beginning in 2020 you can make contributions at any age|
|Track Contributions?||Yes. Use IRS form 1040 and 8606||Yes. Use IRS form 1040 and 8606|
|Contribution Limits?||Combined IRA contributions (tax-deductible, non-deductible, and/or Roth) cannot exceed the annual IRS limit; 2020 limit is $6,000 ($7,000 if you’re age 50 or older)||Combined IRA contributions (tax-deductible, non-deductible, and/or Roth) cannot exceed the annual IRS limit; 2020 limit is $6,000 ($7,000 if you’re age 50 or older)|