Should I open a Roth IRA? A Traditional IRA? Or put a little money in both? These are questions many taxpayers ask.

Generally, a Traditional IRA may be beneficial if you are eligible to make deductible contributions and expect your tax rate during retirement to be lower than it is today. On the other hand, a Roth IRA may be a wise choice if you expect your tax rate to be the same or higher during retirement.

The answer depends on each unique situation, and a Financial Advisor can help you choose an IRA that's right for you.

First Fidelity Bank offers an IRA to fit your specific goal. For more information, call us or stop by one of our convenient neighborhood locations.  Contact your tax advisor for specific tax savings.

Compare your IRA choices.1

 

  Traditional IRA Roth IRA
What is the contribution limit for 2010? 100% of earned income up to $5,000 ($6,000 if eligible2 for a catch-up contribution) reduced by Roth IRA contributions. 100% of earned income up to $5,000 ($6,000 if eligible2 for a catch-up contribution) reduced by Traditional IRA contributions.
 
What is the contribution limit for 2011? 100% of earned income up to $5,000 ($6,000 if eligible2 for a catch-up contribution) reduced by Roth IRA contributions. 100% of earned income up to $5,000 ($6,000 if eligible2 for a catch-up contribution) reduced by Traditional IRA contributions.
 
Who is eligible? Anyone with earned income who is under age 70½ in the contribution year.



 
The 2010 contribution limit is phased out for those individuals who have a Modified Adjusted Gross Income (MAGI) between $105,000-$120,000 (single) and $167,000-$177,000 (married, filing jointly). For 2011, the phase-out ranges are $107,000-$122,000 (single) and $169,000-$179,000 (married, filing jointly).
What are the tax advantages? Tax-deferred3
Investment growth is tax-deferred and you may be eligible for a tax deduction on your contributions. You won't pay taxes on deductible contributions or any earnings until you withdraw money.
Tax-free4
Investment growth is tax-free when withdrawn as part of a qualified distribution (as defined by the IRS). Refer to What are
the withdrawal rules? below.
Is my contribution tax deductible? If you're covered by an employer-sponsored retirement plan, 2010 tax year contributions are fully deductible if your Modified Adjusted Gross Income (MAGI) is below $56,000 (single) and $89,000 (married, filing jointly). You'll get a partial deduction if your income is between $56,000-$66,000 (single) and $89,000-$109,000 (married, filing jointly). For 2011, the MAGI phase-out ranges are $56,000-$66,000 (single) and $90,000-$110,000 (married, filing jointly).

If you're covered by an employer-sponsored retirement plan, but your spouse isn't, you may take a deduction for the contribution made to your spouse's IRA if, for 2010, your joint MAGI is no more than $167,000. The deduction is phased out for joint MAGI between $167,000-$177,000. For 2011, the deduction is phased out for joint MAGI between $169,000-$179,000. If neither spouse is covered by an employer-sponsored plan, the contributions are fully tax-deductible, regardless of income level.
No.
Your contribution is not tax-deductible.














 
Is there an age limit for contributions? Yes.
You must be under age 70½ in the contribution year to contribute. However, as long as you have earned income and your spouse is under age 70½ in the contribution year, you may make a contribution to your spouse's IRA.
 
No.
 
Are rollovers and transfers permitted? Yes.
You may roll over or transfer to and from other Traditional IRAs or qualified employer-sponsored plans. In 2011, all IRA owners will be able to convert their Traditional IRA to a Roth IRA.
Yes.
You may roll over or transfer to and from other Roth IRAs. You may also convert a Traditional IRA or roll over an employer-sponsored retirement plan to a Roth IRA. For 2011 conversions, there is no MAGI requirement.
What are the withdrawal rules? Withdrawals you make before you turn 59½ are generally subject to a 10% IRS penalty. You may make certain withdrawals free of IRS penalties before you turn 59½, including withdrawals to help pay for a first time home purchase (as defined by the IRS with a $10,000 lifetime limit) or for qualified higher education expenses (taxes apply to all earnings and all deductible contributions withdrawn). Other exceptions may apply. Distributions must begin by April 1 of the calendar year following the year you turn 70½. Qualified withdrawals of earnings are tax-free4 and IRS penalty-free. Qualified withdrawals are those taken after 5 years have passed since the account was initially funded and the withdrawal is made: at age 59½ or older, upon death, for reason of disability (as defined by the IRS) or for a first time home purchase (as defined by the IRS with a $10,000 lifetime cap). Withdrawals of contributions at any time are tax-free and IRS penalty-free. Similar to Traditional IRA rules, withdrawals for qualified higher education expenses and first time home purchases prior to the 5-year holding period, are free of IRS penalties, even though they're not considered qualified withdrawals for purposes of taxation. Other exceptions may apply.

1 Information provided is as of December 2010.

2 Must be age 50 and older by December 31 of the contribution year.

3 Tax-deferred growth means the individual delays paying Federal income tax on earnings until money is withdrawn from the retirement plan.

4 Tax-free means free from Federal income tax.