Traditional verses Roth

All IRAs are designed to help people save for retirement and can be used to purchase other investment products, such as stocks, bonds, and CDs, but the differences between the options can be significant. Contributions to a traditional IRA can be tax deductible, depending on one’s income level, whereas contributions to a Roth IRA are not tax deductible. So why are Roth IRAs still popular?

First, withdrawals for a traditional IRA begin at age 59½ and are mandatory by age 70½. With a Roth IRA, you can withdraw at any age. Second, taxes are almost always paid on earnings when withdrawing funds from a traditional IRA—there may be some exceptions, while withdrawals on Roth IRAs are completely tax-free, if rules and regulations are followed. Finally, all funds withdrawn from a traditional IRA before age 59 ½ are subject to a 10% penalty, with some exceptions. Principle contributions to a Roth IRA can be withdrawn at any time without penalty, subject to some restrictions.

However, Roth IRAs are not available to those who make more than $101,000 for 2008 as a single-filer or $159,000 for 2008 as a married couple, while traditional IRAs are available for any income level. Contribution limits increase each year through 2008 and are subject to cost-of-living adjustments (COLA) each year thereafter. In addition to a contribution limit increase, those IRA owners who have attained age 50 may contribute an additional amount, allowing them to "catch-up" on their retirement savings. The maximum allowable deposits are 100% of earned income or the amount listed in the chart below whichever is less. The following chart shows the contribution limits in effect for tax-years 2006 and beyond.

Contact our Member Care Center or come into one of our branches to learn more about which investment option is right for you.