Traditional Vs. Roth IRA
The deadline for setting up an IRA, whether traditional or Roth, is the due date for filing your tax return (not including extensions). This also is the contribution deadline. You may not set up or make contributions to a traditional IRA in the year you attain age 70½ or later. This restriction does not apply to Roth IRAs.
The maximum amount that can be contributed to a traditional or Roth IRA is the lesser of your compensation or $5,500 for 2016, 2015 and 2014. Individuals who have attained age 50 may make additional catch-up contributions. The otherwise maximum contribution limit for an individual who has attained age 50 before the end of the taxable year is increased by $1,000 for a total of $6,500 for 2016, 2015 and 2014. The annual contribution limit is reduced for any contributions made to other traditional or Roth IRAs; thus, contributions to all of your traditional IRAs and Roth IRAs for a taxable year may not exceed the above annual contribution limits.
Phase-out rules reduce the annual contribution limit (and deduction limit, in the case of traditional IRAs) based on your modified AGI and filing status. The traditional and Roth IRA contribution limit (determined without taking into account deductions for traditional IRA contributions) is phased out for 2016 for taxpayers with a modified AGI between $117,000 and $132,000for single taxpayers; between $184,000 and $194,000 for married taxpayers filing joint returns; and between $0 and $10,000 for married taxpayers filing separate returns.
For traditional IRAs, the phase-out rules further reduce your contribution and deduction limits if you are an active participant in your employer’s retirement plan. The 2016 phase-out limits for active participants are between $61,000 and $71,000 for a single individual; between $98,000 and $118,000 for married couples filing jointly; and between $0 and $10,000 if you are married but filing separately. The active participant rules do not apply to Roth IRAs.
Another important difference between traditional and Roth IRAs involves the required minimum distribution rules, which require individuals to begin receiving distributions from traditional IRAs in the year following the year in which the individual attains age 701/2. In contrast, no minimum distributions are required to be made from a Roth IRA while the owner is alive. The post-death minimum distribution rules that apply to traditional IRAs generally also apply to Roth IRAs.
To discuss your IRA contribution strategy call or write at 440-617-6697.