Return to Roth IRA
©1998 Peter James Lingane
Traditional IRA |
Roth IRA |
| Contributions are deductible if you don't participate in a pension plan or if you meet certain income limitations | Contributions are never deductible and may be limited by income |
| Maximum Combined Annual Contribution Limit is the smaller of $2,000 - $4,000 for a married couple - or earned income | |
| Earnings are tax deferred until withdrawals begin Federal and California Basis could be different. Federal basis is recovered gradually and any extra California basis is recovered first. |
Earnings are initially tax deferred but they become
tax exempt after five years and age 59½ Same Federal and California basis. Basis is recovered first |
| Early Withdrawal Penalties unless age 59½, death, disability, medical expenses or higher education (and equal payments for traditional IRA) | |
| Mandatory Withdrawals from age 70½ or death | No Mandatory Withdrawals before death |
| Spouse as Beneficiary can treat decedent's IRA as
their own Non Spouse Beneficiaries can be required to take distributions over an interval shorter than their life expectancy Income in Respect of a Decedent can shrink the by-pass trust created at the first death and can decrease liquidity at the second death |
Spouse as Sole Beneficiary can treat decedent's
IRA as their own Non Spouse Beneficiaries, except estates and certain trusts, can always receive distributions over their life expectancy. This can increase post death deferral benefits as compared to a traditional IRA No Income in Respect of a Decedent |
| Tax Deferred Rollovers from traditional IRAs and from Qualified Plans (e.g., 401k, 403b, SIMPLE, Keogh) | Tax Deferred Rollovers from Roth IRAs |
| Taxable Conversion from traditional IRAs, subject to
income ceiling. A conversion can be reversed for any reason prior to filing your
income tax return. Four Year Income Averaging (1998 only) Withdrawals before five years could be taxable |
|
| Can Be Bifurcated in Divorce without immediate tax consequences, Loans are not allowed and Creditor Protection is limited | |
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This summary is not a complete discussion of the issues nor is it a full recitation of state and federal tax laws and regulations. Review your personal circumstances with your tax adviser
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