- Traditional IRAs: Allow anyone with earned income who is under age 70½ to contribute the maximum $5,500 in 2017, plus catch-up if eligible. However, your ability to deduct traditional IRA contributions will depend on your annual income, your filing status, and whether you or your spouse is covered by an employer-sponsored plan. You may be able to deduct all, a portion, or none of your contribution for a given year.
- Roth IRAs: No age limitation applies to contributions. As long as you have taxable compensation and qualify, you can contribute to a Roth IRA even after age 70½. However, the amount you’ll be able to contribute (up to the annual limit) will depend on your income and tax filing status. Although Roth IRA contributions are not tax deductible, Roth IRAs have other advantages. Your ability to contribute does not depend on whether you or your spouse are covered by an employer-sponsored retirement plan. The fact that one of you is covered by such a plan has no bearing on your allowable contribution to a Roth IRA.
- Distributions: A withdrawal from an IRA is referred to as a distribution.
- Any distribution from a Traditional IRA will be subject to income taxes to the extent that the distribution represents earnings and deductible contributions. You may also be hit with a 10 percent early withdrawal penalty if you draw money out before age 59½ (there are exceptions to this rule). Beginning at age 70½, you must begin to take annual distributions from a Traditional IRA.
- You’re not required to take distributions from a Roth IRA at any age, which gives you more estate planning options. Qualified withdrawals will avoid both income tax and the early withdrawal penalty if certain conditions are met. Nonqualified withdrawals will be taxed and penalized only on the earnings portion of the withdrawal, since the principal is your own after-tax money.
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