A Roth Individual Retirement Account (IRA) is a savings tool that offers a way for workers to save for retirement, homeownership, or other purposes. It is also useful for people who participate in an Individual Development Account (IDA) program. Workers who feel they don’t earn enough to save for retirement may find that the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC) refund are enough to start a Roth IRA.
2022 ROTH IRA AND TRADITIONAL IRA COMPARISON
Roth IRAs offer several advantages over traditional IRAs.
|Roth IRA||Traditional IRA|
|Interest earned||Generally non-taxable||Taxable|
|Age limit to contribute||No age limit||No age limit|
|Age for withdrawal||As early as 59½||As early as 59½; required to begin by April of the year following when you turned 72|
|Early withdrawal penalties||Don’t apply if certain criteria are met||Apply for certain withdrawals before 59½|
You can withdraw funds in a Roth IRA tax-free if the account is at least five years old and you:
- are age 59½; or
- are using IRA funds for a first-time home purchase (up to $10,000 toward each purchase); or
- have a spouse, child, or grandchild who is using IRA funds for a first-time home purchase (up to $10,000 toward each purchase); or
- are using IRA funds for higher education expenses; or
- have a disability.
The main benefit of traditional IRAs is that you can subtract money saved in these accounts from your, which could lower your income tax liability. While Roth IRAs do not provide this benefit, many workers with lower and moderate incomes don’t need this tax benefit because they don’t earn enough to owe income taxes or because they owe income taxes but don’t need an additional deduction.
Some workers who contribute to IRAs may be eligible to claim the Saver’s Credit.
- Information on Roth IRAs – Internal Revenue Service (IRS)
- See Chapter 2, “Roth IRAs” in the following IRS publications: