Your options include:

• Traditional IRA
• Traditional IRA -SEP Contribution
• Roth IRA
• Educational Savings Account (ESA)

IRA Quick Facts

Account descriptions

Traditional IRA

Your earnings grow tax-deferred and, if eligible, your contributions may be tax-deductible as well.

You can also roll over your 401(k) or employer-sponsored qualified retirement plan to consolidate your retirement assets.

Roth IRA

You make after-tax contributions but the money you withdraw after retirement may be free from federal taxes.

Eligibility to contribute

Traditional IRA

You can contribute up to the year you turn 72 as long as you have earned income.

Roth IRA

You can contribute at any age as long as you have earned income and meet the income limitations.

Maximum annual contribution

Traditional IRA

$6,000 ($7,000 age 50 and older) for 2019 & 2020.

Roth IRA

$6,000 ($7,000 age 50 and older) for 2019 & 2020.

Tax-deductible contributions

Traditional IRA

You can deduct your contributions if you meet the eligibility requirements.

Roth IRA

Contributions are made in after-tax dollars and are not tax-deductible.

Taxation of earnings and withdrawals

Traditional IRA

Tax deductible contributions and earnings are taxed as ordinary income when withdrawn.

After tax contributions are withdrawn tax-free.

Roth IRA

Contributions (all are made after tax) are always income tax free. Earnings may be income tax free if the account is held for 5 years and are withdrawn for a qualified reason.

Withdrawal of earnings for nonqualified reasons may be taxed as ordinary income and subject to an early withdrawal penalty.

Withdrawal penalties

Traditional IRA

10% IRS early withdrawal penalty if withdrawn before age 59 1/2 unless exception applies.

Roth IRA

No penalties for withdrawals of contributions.

10% IRS early withdrawal penalty if earnings withdrawn before age 59 1/2 unless exception applies.

Required withdrawals

Traditional IRA

Must begin at age 72.

Roth IRA

Upon death of owner

SEP IRA

A SEP IRA may be best if you are:

• Self-employed
• An employer with few or no employees
• An employer who wants to make high contributions to their own accounts and the accounts of partners or employees

 

Coverdell Education Savings Account

Like its name implies, Coverdell Education Savings Accounts are designed for any qualified education expense. Withdrawals are only allowed for qualified education expenses and earnings are tax-free.

Like Roth IRAs, contributions are not tax deductible. Total contributions to a Coverdell Education Savings Account cannot exceed $2,000 per year, per child, and must be made no later than the federal income tax return deadline, not including extensions.

You can contribute to a Coverdell Education Savings Account until the child reaches age 18. Children have up until age 30 to use the funds. You cannot contribute to a Coverdell Education Savings Account in the same year you contribute to a state prepaid tuition plan.

*Consult your tax advisor.