Choosing the Right IRA for You
Traditional and Roth IRAs are both designed to help you save for retirement. With a traditional IRA, your contributions may be tax-deductible and can grow tax-deferred. With a Roth IRA, your contributions are non-deductible, but have the potential to grow tax free.
How Much Can I Contribute to an IRA?
You may contribute 100% of earned income to either a traditional IRA, a Roth IRA or both types of IRAs up to the annual contribution limit. The contribution limit for 2014 and 2015 is $5,500 or $6,500 if you are 50 years of age or older.
If you have earned income, you're eligible to contribute. Even if you don't have earned income, you can still contribute if your spouse has earned income and you file your taxes as Married Filing Jointly. However, in either case, you must stop making contributions the year you reach age 701/2.
If you have earned income, or your spouse has earned income and you file your taxes as Married Filing Jointly, you can contribute at any age as long as your modified adjusted gross income (MAGI) falls below or within the limits listed below.
If you are not currently eligible to contribute to a Roth IRA you might consider converting your Traditional IRA to a Roth IRA and enjoy tax-free income in the future. Learn more about Roth IRA conversions.
When Can I Access My IRA?
Traditional IRA: You can access your money at any time, but a withdrawal is subject to ordinary income tax and a 10% early withdrawal penalty if you take a distribution before reaching age 591/2. Exceptions to early withdrawal penalties are:
- Death or disability
- College expenses
- First-time home purchase (up to $10,000)
- Payment of health insurance premiums after 12 consecutive weeks of unemployment
- Payment of medical expenses that exceed 7.5% of MAGI
- Systematic distributions [72(t)]
- IRS levy
- Qualified reservist distribution
If you take a distribution after age 591/2, you pay ordinary income tax on the withdrawal but do not pay a penalty. Required minimum distributions (RMDs) begin at age 701/2.
Roth IRA: You can access contribution dollars at any time without taxes or penalties. If you've held a Roth IRA, including converted accounts, for less than five years and withdraw earnings from the IRA before reaching age 591/2, you may be subject to income tax and a 10% early withdrawal penalty. Exceptions to early withdrawal penalties are the same as those with a traditional IRA.
Can I Take a Tax Credit?
You may be eligible for a tax credit when you contribute to a retirement plan or an IRA. The maximum annual contribution eligible for this tax credit is $2,000, and the credit rate you receive depends on your adjusted gross income (AGI):
All tables show information for the 2014 and 2015 tax years. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. Please consult your attorney or qualified tax advisor regarding your situation.