Traditional IRA vs. Roth IRA: Which One Is Right for You?

Written by Jonathan K. Dickson Monday, November 30 2009

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Whatever you see for yourself in retirement - whether it's work, leisure, or something in between - you'll need sufficient funds to ensure yourself an adequate income on which to live. It used to be that most people could rely solely on employer-sponsored pension plans and Social Security payments to provide for a comfortable retirement. Not so today.

More people than ever are responsible for planning and funding their own retirements, and one of the most effective and popular retirement savings vehicles is the individual retirement account (IRA). This article provides an overview of two different types of IRAs - the traditional IRA and the Roth IRA.

The Traditional IRA
Your savings in a traditional IRA get the benefit of tax-deferred growth until those savings are withdrawn. Contributions may or may not be tax-deductible depending upon your income level and whether you (and your spouse, if married) are covered by an employer's qualified retirement plan.

If you are a working individual under the age of 70½, you are eligible to contribute 100 percent of your earned income, up to $5,000 in 2009, to a traditional IRA. If you are age 50 or older, you can make an additional $1,000 catch-up contribution for the year. Single income married couples may contribute 100 percent of earned income up to $10,000 for 2009 (plus catch-up contributions, if eligible), although no more than $5,000 ($6,000 if age 50 or older) can be contributed on behalf of any individual each year.

Contributions to a traditional IRA have always been, and remain, tax deductible for:

• Single taxpayers who are not covered by such an employer-sponsored qualified retirement plan.
• Married couples filing jointly where neither spouse is covered by such an employer-sponsored qualified retirement plan.

Deductibility for individuals who are covered by an employer-sponsored qualified retirement plan depends on modified adjusted gross income (MAGI).

IRA contributions for 2009 are fully tax deductible for:

• Single taxpayers covered by an employer-sponsored plan, if their MAGI doesn't exceed $55,000 in 2009.
• Married individuals covered by an employer-sponsored plan, whose joint MAGI doesn't exceed $89,000 in 2009.