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Traditional IRA verses Roth IRA


The Individual Retirement Account (IRA) is one of the easiest and smartest ways to save for retirement or supplement your employer sponsored retirement plan. The Traditional and Roth IRAs are the most common. The chart below will help you understand and compare the differences between Traditional and Roth IRAs.

Both Individual Retirement Accounts have different eligibility guidelines such as the amount of money you make, certain age limits, and tax implications upon withdrawal. Use the chart to compare or for more detailed product information contact South Carolina Federal Credit Union. We recommend that you seek advice from a tax consultant with regard to your personal situation.



 
 
 Traditional vs Roth IRA

 

 Traditional IRA

 Roth IRA

Possible Tax Advantages
  • Tax-deferred growth potential. Generally pay taxes when you withdraw money
  • Earnings are always tax deferred until withdrawn
  • Contribution may be tax-deductible. Three factors determine deductibility:
    1. Marital and tax-filing status
    2. Modified Adjusted Gross Income (MAGI)
    3. If you or your spouse actively participate in an employer-sponsored retirement plan
     
    • Earnings are always tax deferred until withdrawn
    • Earning may be withdrawn tax-free if the owner has a qualified distribution. The owner is 59 1/2 or older, is disabled, is deceased, or the distribution qualifies as a first time home purchase AND the owner has had a Roth IRA for 5 years.
    • Roth contributions are not tax-deductible
    Contribution Eligibility
    • Under 70 1/2
    • Must have reportable earned income
    •  No age restrictions
    • Must have reportable earned income
     Income Limits

     For Full Deduction

    • Single - $56,000 or less
    • Married/ Filing Jointly - $90,000 or less
     For Full Contribution
    • Single - $107,000 or less
    • Married/ Filing Jointly - $169,000 or less
    Maximum Contributions 2010/2011

     $5,000 - under 50
     $6,000 - 50 or older
    Contributions cannot exceed annual compensation.
     

    Benefits
    • May qualify for a saver's tax credit up to $1,000
    • Earnings are tax-deferred
    • Contributions may be tax-deductive and tax-deferred
    • May qualify for a saver's tax credit up to $1,000
    • Earnings are tax-deferred
    • Withdrawals of regular contributions are tax-free and penalty-free anytime
    • If qualified distribution requirements are satisfied you can withdraw earnings tax-free
    • You are never required to take money out of your Roth IRA - no matter your age



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