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Traditional IRA vs. Roth IRA
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Comparison |
Traditional IRA |
Roth IRA |
| Eligibility |
Anyone under the age of 70 ½ with earned income. |
Anyone with earned income (no age restrictions) whose MAGI is not in excess of $177,000 for 2010, $179,000 for 2011 (joint returns) or $120,000 for 2010, $122,000 for 2011 (single returns). |
| Establishment Deadline |
Tax filing due dates, no extensions. |
Tax filing due dates, no extensions. |
| Total Contributions |
100% of compensation or $5,000 for 2010 or 2011 (combined limit between Traditional and Roth IRA) per individual, whichever is less. |
100% of compensation or $5,000 for 2010 or 2011(combined limit between Traditional and Roth IRA) per individual, whichever is less. |
| Taxations of Distributions |
Before Age 59 ½: Penalty-free if utilizing substantially equal payments or if taken for first-time home ownership ($10,000 lifetime limit), qualified higher education expenses, death, disability, medical expenses exceeding 7.5% of MAGI, or purchase of health insurance after receiving unemployment compensation for 12 weeks or more. Otherwise, ordinary income tax and 10% penalty.
After Age 59 ½: Ordinary income tax.
At Any Age Beneficiaries: No penalty. May receive distributions that are subject to ordinary income tax, but no 10% penalty. |
Before Age 59 ½: Tax-free and penalty-free if IRA five year holding period is met and taken for first-time home ownership ($10,000 lifetime limit), death or disability. Penalty-free if utilizing substantially equal payments or if taken for qualified higher education expenses, medical expenses exceeding 7.5% of MAGI, or purchase of health insurance after receiving unemployment compensation for 12 weeks or more. Otherwise, ordinary income tax and 10% penalty.
After Age 59 ½: Tax-free if five year holding period is met. Otherwise, ordinary income tax. No penalty. Contributions may be removed tax- and penalty-free at any time; therefore accumulated earnings only are subject to taxation. All distributions are considered to come from contributions first and earnings last. |
| Required Minimum Distributions |
Must start by April 1st of the year following the year the individual reaches age 70 ½ or within certain time limits after death. Failure to take out minimums may result in a 50% penalty tax on required amounts not withdrawn. |
Mandatory distributions are not required at age 70 ½ but mandatory post-death distribution rules apply. |
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors do not offer tax advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.
GP10-02671P-N12/10
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