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).
There are two main types of IRAs – Traditional or Roth. You can choose one or both depending on your tax situation and income but total contributions cannot exceed $5,000 or $6,000 if you are age 50 or older. 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| Earnings | Earnings are tax-deferred until withdrawn (IRS early withdrawal penalties may apply if you are under age 59 1/2).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. (If requirements are not met, taxes and penalties may apply). |
| 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 or your spouse must have earned income to contribute. | Your modified adjusted gross income must be below certain limits depending on your tax filing status and you or your spouse must have earned income. |
| Distributions | Distributions are required beginning at age 70 1/2. | You are not required to take mandatory distributions at any age during your lifetime. Non-spouse beneficiaries are subject to minimum distributions rules. |
See current IRA contribution requirements
Should you convert to a Roth IRA?
Beginning in 2010, two important changes took 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income limit for Roth IRA conversions and tax filing status limitations for those who are married filing separately are no longer in effect, allowing more people to take advantage of a Roth IRA (however, income limits for Roth IRA contributions will remain in effect).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 you to spread the taxable income from the conversion equally over a two-year period in tax years 2011 and 20121.
The decision to convert your traditional IRA or eligible employer retirement plan to a Roth IRA is a complex one. Read more about the new Roth IRA conversion opportunities to evaluate whether a conversion might make sense for you or talk to a financial advisor.
1 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 equally 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.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.