IRAs

Traditional IRA (deductible)

Pros:

• Contributions are tax deductible
• Earnings grow tax-deferred
• Penalty-free withdrawals for first time home purchase, higher education, death, disability and certain health/medical insurance bills. Certain limitations and restrictions apply

Cons:

• Early withdrawals (before age 59½) incur a penalty and taxes if no exceptions apply
• Contributions are not deductible if MAGI (Modified Adjusted Gross Income) is too high
• Participation in a company retirement plan is a factor in determining the amount of contribution allowed
• Distributions must begin after age 72

Traditional IRA (non-deductible)

This may be good for individuals that do not qualify for a traditional deductible IRA or a Roth IRA due to income limits.

Pros:

• Available to anyone under 72 who has compensation
• Earnings grow tax deferred
• Penalty-free withdrawals for first time home purchase, higher education, death, disability and certain health/medical insurance bills. Certain limitations and restrictions apply

Cons:

• Contributions are not tax-deductible
• Early withdrawals (before age 59½) incur a penalty and taxes on earnings if no exceptions apply
• Withdrawals are calculated pro rata for tax paid and tax due portions
• Distributions must begin after age 72 and contributions cannot continue after age 72

Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.

Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.