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Traditional IRA Deductible |
Traditional IRA Non-Deductible |
Roth IRA |
| Eligibility |
Must have earned income
Special rules apply for married couples filing separately |
Must have earned income
Special rules apply for married couples filing separately |
Must have earned income and modified adjusted gross income (MAGI) less than:
Single – $138,000
Partial $138,000 - $153,000
Married filing jointly – $218,000
Partial $218,000 - $228,000
Married filing separately – $0
Partial $0 - $10,000 |
Contribution
Catch Up (Age 50 or Older) |
- The lesser of $6,500 or 100% of earned income. $13,000 ($6,500 for each spouse) if married filing jointly
- $1,000
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- The lesser of $6,500 or 100% of earned income. $13,000 ($6,500 for each spouse) if married filing jointly
- $1,000
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- The lesser of $6,500 or 100% of earned income. $13,000 ($6,500 for each spouse)if married filing jointly
- $1,000
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Deductibility
Not covered by an employer-sponsored plan
Covered by an employer-sponsored plan
Married and one spouse is covered by an employer-sponsored plan |
Depends on plan participation
Full deduction if MAGI:
- Single <$73,000
- Married filing jointly <$116,000
Partial deduction if MAGI between:
- Single $73,000 - $83,000
- Married filing jointly $116,000 - $136,000
- If one spouse is covered by a plan and the other is not, the one who is not has full deductibility if the couple’s MAGI is under $218,000
- Partial deduction for MAGI $218,000 - $228,000
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None |
None |
| Tax Benefits |
- Tax deduction
- Earnings grow tax-deferred and taxed upon withdrawal
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- Earnings grow tax-deferred and taxed upon withdrawal
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- Contributions may be withdrawn tax-and penalty-free at any point
- Tax-free earnings (see below)
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Withdrawal Issues
RMDs |
Penalty-free:
- Age 59½ or
- First-time home purchase, higher education, active duty military, medical expenses/insurance, Rule 72(t), death, or disability
RMDs starting at age 72 |
Non-deductible contributions are withdrawn penalty-free and tax-free, but subject to the pro rata rule upon distribution. Earnings are penalty-free:
- After age 59½ or
- First-time home purchase, higher education, active duty military, medical expenses/insurance, Rule 72(t), death, or disability
RMDs starting at age 72 |
Roth contributions are withdrawn penalty-free and tax-free. Roth earnings are penalty-free and tax-free if after five years and
- After age 59½ or
- First-time home purchase, death, or disability
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| Considerations |
- Are you eligible for a deduction based on tax filing status, MAGI, and employer-sponsored plan coverage?
- Is your tax rate going to be lower in the future? If yes, paying taxes on IRA distributions at lower rates in the future may be beneficial.
- How will taxable RMDs in retirement impact your Medicare premiums and Social Security taxation?
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- Do you have pre-tax IRA assets (including Traditional, SEP, and SIMPLE IRAs) in addition to this non-deductible contribution? If no, consider converting this non-deductible contribution to a Roth IRA.
- Are you aware that earnings on this non-deductible contribution will be pre-tax and subject to ordinary income tax upon withdrawal?
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- Are you eligible to make a Roth IRA contribution based on tax filing status and MAGI?
- How old are you? If you have a longer time horizon until retirement, compounding tax-free earnings in a Roth IRA may be beneficial.
- Is your tax rate going to be higher in the future? If yes, having tax-free money in retirement may be beneficial.
- Is not being subject to RMDs and giving tax-free money to beneficiaries important to you?
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