Most commonly it is referred to as a “traditional” or “ordinary” IRA. However, you will find it also referred to as a “classic” or “regular” IRA. We will refer to it as a “traditional” IRA in our website.

The difference between a Roth IRA and a traditional IRA is the treatment of the contributions both on the front end and when withdrawn. A traditional IRA offers the potential of a deductible contribution, being that the contributor qualifies, and when deductible, withdrawals are then fully taxable.

Roth IRA contributions are nondeductible, and thus qualifying withdrawals are tax free.

Many people are eligible for all three types of IRAs, although others may not be.

Click here to see if you are eligible Roth Eligibility

The maximum annual contribution to a Roth IRA is the same as an ordinary IRA. The basic difference is the tax treatment of the Roth IRA. The Roth IRA’s earnings grow tax-free; however, the individual contributions are non-deductible.

https://www.irs.gov/retirement-plans/roth-iras

With an ordinary IRA, the 10% early withdrawal penalty, prior to age 59 ½, will not apply when the distribution is used to pay for qualifying higher education expenses or for a qualifying first-time home purchase up to $10,000. To qualify for this penalty and tax-free distribution under a Roth IRA, the account must be held for a minimum of 5 years, and only withdrawals of the contributions are tax free.

Other exceptions that allow penalty-free (and sometimes tax-free) pre-retirement withdrawals are:

• deductible medical expenses,
• health insurance premiums (when unemployed),
• death or disability,
• when taken as a life annuity.

If you are planning an early retirement and will need your funds prior to age 59 1/2, Rule 72(t) may be of advantage to you.

Yes, although a rollover from a traditional IRA to a Roth IRA is not tax free. Although there is no penalty (10% early withdrawal), the investor who converts to a Roth IRA must pay regular income tax on the entire rollover amount, minus any nondeductible contributions that may have been made. This tax is paid in the year the rollover occurs.

Yes, although a rollover from a traditional IRA to a Roth IRA is not tax free. Although there is no penalty (10% early withdrawal), the investor who converts to a Roth IRA must pay regular income tax on the entire rollover amount, minus any nondeductible contributions that may have been made. This tax is paid in the year the rollover occurs.