Difference Between IRA & Roth Accounts
Traditional and Roth IRAs (individual retirement accounts) have different rules for contributions and withdrawals. Knowing how the Internal Revenue Service (IRS) treats each type of account can help you decide which IRA is best for you.
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Contributions
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You may be able to deduct traditional IRA contributions from your income for tax purposes, depending on your income and whether you have a retirement plan at work. You can't deduct Roth account contributions because you make them using after-tax money.
Contribution Cutoff
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Once you reach age 70 1/2, you no longer can contribute to a traditional IRA. The IRS never requires you to stop contributing to a Roth account, as long as you receive earned income and don't go over the income limit.
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Withdrawals
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When you withdraw money from a traditional IRA in retirement, you must pay taxes on it. Roth account withdrawals are tax-free, including the profits you have made on the contributions, as long as you meet certain requirements.
Required Withdrawals
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When you turn 70 1/2, you must begin withdrawing money from a traditional IRA. You never are required to withdraw funds from a Roth account.
Five-Year Requirement
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You can withdraw Roth account contributions, without consequences, whenever you want. However, to withdraw any profits made on the contributions tax-free and avoid a 10 percent penalty, you must have held the account at least five years, be at least 59 1/2 years old or qualify for an early withdrawal exception.
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