- A traditional IRA determines eligibility based on age at the end of the year, while a Roth IRA determines eligibility based on modified adjusted gross income. You cannot be older than 70 1/2 at the end of the calendar year that you make a contribution to a traditional IRA, no matter what your income. For a Roth IRA, your modified adjusted gross income cannot exceed the yearly limit for your filing status, which varies from year to year, but your age does not matter.
- Traditional IRAs offer an income tax break in the year of the contribution, but the IRS taxes all withdrawals. Roth IRAs offer no income tax break in the year of the contributions, but the IRS allows tax-free qualified withdrawals. To determine which benefits you most, predict your tax rate at retirement and compare it to your current tax rate. If your predicted retirement tax rate exceeds your current tax rate, you are likely to be better off contributing to a Roth IRA. If your current rate is higher, consider a traditional IRA contribution.
- The only criterion you must satisfy in order to count your traditional IRA distribution as a qualified distribution is that you be at least 59 1/2 years old at the time of the distribution. No other criteria are required. Roth IRAs require more. First, you must be either 59 1/2 years old, permanently disabled or using no more than $10,000 to purchase your first home. Second, you must have made the first Roth IRA contribution at least five tax years prior to the time of the distribution.
- The IRS never forces you to take distributions from your Roth IRA, allowing you to continue to enjoy the tax-sheltered growth as long as you live. With traditional IRAs, the IRS forces you to start taking minimum amounts from the account in the year you turn 70 1/2. Your financial institution can provide you the amount you have to distribute, which is calculated by dividing the value of your IRA by your life expectancy.
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