Traditional & Roth IRAs
An individual retirement arrangement (IRA) can help you save for retirement with either tax-deferred or tax-free growth of any earnings. You may also choose to use an IRA to supplement your 401(k) without increasing your tax burden.
There are two main types of IRAs – Traditional or Roth. You can choose one or both depending on your tax situation and income. If you have just changed jobs or recently retired, Ameriprise also offers a Rollover IRA (a traditional IRA typically used to hold only rollovers) to help you take control of your retirement assets and preserve your tax advantages.
An Ameriprise financial advisor can help you find the appropriate IRA for your situation and help you plan for your financial future.
| Comparison | Traditional IRA | Roth IRA |
|---|---|---|
| Earnings | Earnings are tax-deferred until withdrawn (IRS early withdrawal penalties may apply if you are under age 59 1/2). | Earnings are tax-deferred and tax-free upon withdrawal if certain requirements are met. |
| Contributions | Contributions may be tax-deductible depending on your modified adjusted gross income
and other factors. You may no longer make contributions for the year in which you reach age 70 1/2; or in later years. |
Contributions are not tax-deductible. You may continue making Roth IRA contributions after age 70 1/2 if you have earned income. |
| Income requirements | No income limit to make contributions; however, you must have earned income to contribute. | Your modified adjusted gross income must be below certain limits depending on your tax filing status. |
| Distributions | Distributions are required beginning at age 70 1/2. | You are not required to take mandatory distributions at any age during your lifetime. Beneficiaries are subject to minimum distributions rules, but may not have to take a distribution in a specific year. |
See current IRA contribution requirements
Should you convert to a Roth IRA?
If your modified adjusted gross income is $100,000 or less and you file a joint return if married, you can convert your traditional IRA or eligible employer retirement plan to a Roth IRA1. You will have to pay income taxes on the taxable portion of the amount you convert.
The decision to convert your traditional IRA or eligible employer retirement plan to a Roth IRA is a complex one. Below are some key factors that can help you determine whether you would be a good candidate. For additional help, contact your financial advisor or find a financial advisor near you.
| Conversion to a Roth IRA may be appropriate if: | Leaving assets in a traditional IRA or employer plan may be appropriate if: |
|---|---|
|
|
1 Beginning in 2010, two important changes are scheduled to take effect for converting an IRA (traditional, SEP or SIMPLE) or other eligible qualified retirement plan to a Roth IRA. First, the income limit for Roth IRA conversions and the prohibition against conversions for tax filing status of married filing jointly will no longer be in effect, allowing more people to take advantage of a Roth IRA (however, income limits for Roth IRA contributions will remain in effect). Second, conversions to a Roth IRA that occur in 2010 will allow the taxpayer to spread the taxable income from the conversion ratably over a two-year period in tax years 2011 and 2012.
The deadline for recharacterizing a 2010 Roth conversion is October 15, 2011. If a recharacterization is not done by that date, the taxpayer will be locked into any tax liability from the conversion, including reporting income ratably over 2011 and 2012 if applicable.
Ameriprise Financial and its representatives or affiliates do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax/legal issues.
Ameriprise Financial Services, Inc., Member FINRA & SIPC.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.