Traditional Vs. Roth IRAsTraditional Vs. Roth IRAs
In 2009, only individuals with a modified adjusted gross income of $100,000 or less are allowed to convert a traditional IRA to a Roth IRA. But this income restriction is eliminated in 2010. So, the question becomes, Do you want a Roth IRA? To help you decide, here is a comparison of the traditional versus the Roth IRA: Eligibility to Contribute Age: You can establish and make annual contributions
Marcia Chadwick Holt
In 2009, only individuals with a modified adjusted gross income of $100,000 or less are allowed to convert a traditional IRA to a Roth IRA. But this income restriction is eliminated in 2010. So, the question becomes, “Do you want a Roth IRA”? To help you decide, here is a comparison of the traditional versus the Roth IRA:
Eligibility to Contribute
Dollar Limits for Contributions
Age: You can establish and make annual contributions to a traditional IRA if you (or, if you file a joint return, your spouse) are not 70½ years old by the end of the year of contribution. You might think that you can make a nondeductible contribution to a traditional IRA even if you have attained age 70½. Not so! You may make neither deductible nor nondeductible annual contributions to a traditional IRA if you have attained age 70½1 by the end of the year of contribution.
There is no age limit for making rollover contributions to a traditional IRA,2 annual or rollover contributions to a Roth IRA,3 Roth contributions to a designated Roth account in an Internal Revenue Code Section 401(k) plan or Section 403(b) plan, or contributions to a deemed IRA, a SEP-IRA4 or a SIMPLE IRA.5
Compensation: You must have compensation in the year of the annual contribution to a traditional IRA or Roth IRA with one exception. An employed spouse can set up a traditional IRA or Roth IRA for his non-employed spouse as long as they file a joint income tax return. Compensation includes amounts shown in the W-2 box 1 for wages, tips and other compensation. It also includes alimony. It does not include pension, annuities or other forms of deferred compensation.6
Tax Consequences of Contributions
Timing: You may establish a traditional IRA or Roth IRA for annual contributions no later than the unextended due date of your income tax return for the year the contribution is made. For most taxpayers, this means April 15 of the following year. The contribution (whether or not deductible) also must be made by that date.7
You may make annual contributions only in cash to a traditional IRA or Roth IRA up to $5,000 (the dollar limit).8 If you are age 50 or older, you may also make a catch-up contribution of $1,000. Both dollar limits are subject to indexing.
If you make contributions in excess of the dollar limit, you are subject to a cumulative 6 percent excise tax for each taxable year in whi...
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