IRA Overview: Traditional and Roth IRAs

There are many ways to save for your retirement. Through a company-sponsored retirement plan such as a 401(k), investing in mutual funds that are earmarked for retirement, and tried and true individual retirement accounts (IRAs) with their counterpart, Roth IRAs.

Learn more about how recent court rulings alter IRA landscape »

A Traditional IRA is a retirement account that allows you to set aside money each year. A key benefit of an IRA is that your savings and earnings grow tax deferred, so you don't have to pay income taxes until you make withdrawals.¹ The hypothetical example below demonstrates the power of tax-deferred compounding. It assumes that an investor contributes $100 a month for 30 years to an IRA with an 8% annual rate of return. At the end of the period, the account would have grown to $146,720. If the investor contributed the same amount to a taxable account, after 30 years the account would have grown to only $96,005.

Tax Deferred Asset May Grow Faster

In addition to the benefits of tax-deferred compounding, contributions to an IRA may be fully or partially deductible from your income taxes. To be eligible to receive the deduction, all of the following requirements must be met. You must:

  • Have earned income,
  • Be younger than age 70½, and
  • Satisfy the income requirements shown below if you are covered by an employer-sponsored retirement plan.
2016 IRA Deductiblity Eligibility:  By Modified Adjusted 
Gross Income if You Are Covered by a Retirement Plan at Work
Deductible Up to
Deductible Up to
Single or Head of
Household Taxpayer
$61,000 $71,000
Joint Taxpayer $98,000 $118,000


Even if your income exceeds the limits for a deductible IRA, you may make non-deductible contributions after tax and you’ll continue to benefit from tax-deferred growth opportunities. In addition, only your earnings are subject to income taxes when you make withdrawals.

Roth IRA 101

A Roth IRA is a type of individual retirement account. Like a Traditional IRA, contributions to a Roth IRA compound tax deferred and there are contribution limits. However, there are some important differences:

  • With a Roth IRA, there are no up-front tax deductions, as contributions are made with after-tax dollars.
  • Distributions from a Roth IRA after age 59½ generally aren’t taxed if certain conditions are met.
  • Annual contributions to a Roth IRA can be made for as long as you have earned income, even after age 70½.
  • You can withdraw contributions (but not earnings or conversion amounts) at any time without incurring any penalties or taxes.
  • You do not need to take Required Minimum Distributions (RMDs) during your lifetime.

To be eligible to contribute to a Roth IRA you must meet the income requirements shown in the table below:

2016 IRA Eligibility: By Modified Adjusted Gross Income
  Single or Head of Household Taxpayer Joint Taxpayer
Eligible $117,000 or Less $183,000 or Less
Eligible Phase-Out $117,000-$132,000 $183,000-$193,000
Not Eligible $132,000 and Above $193,000 and Above

Learn More Today

A Traditional IRA and Roth IRA can be powerful tools to help you save for a secure retirement. To learn about these accounts, their benefits and restrictions, contact your financial professional or call 800-MAINSTAY (624-6782).

1. An additional 10% federal tax penalty may apply for withdrawals made prior to age 59½.