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For Individuals: How do a traditional IRA and the Roth IRA compare?

This chart compares the features and benefits of a traditional IRA and Roth IRA.

Traditional IRA Roth IRA
Eligibility Under age 70½ with earned income.

Eligible wage earners of any age.
Subject to limitations; see below.

Annual Contribution Limits (Total maximum contributions to any IRA or combination of IRAs must not exceed the annual contribution limits for that year.) 2014: $5,500
Catch-up contributions for age 50 and older is an additional $1,000 annually.
  • Same as traditional IRA
  • Must have household Modified Adjusted Gross Income (MAGI) of $114,000 or less (single) or $181,000 or less (married) to make maximum contribution.*
  • Individuals with MAGI $114,000 – $129,000 or married couples with MAGI $181,000 – $191,000 may make smaller contributions.*
Deductibility of Contributions
  • Fully income tax-deductible (federal) if not covered by an employer-sponsored retirement plan.
  • Fully income tax-deductible (federal) if covered by an employer-sponsored retirement plan and household MAGI is below
    $60,000 (single) or $96,000 (married).*
  • Individuals with MAGI $60,000 – $70,000 or married couples filing jointly with MAGI $96,000 – $116,000 may make partially deductible contributions.*
Not tax-deductible.
Earnings Income tax-deferred. Federally tax-free if taken after five years and meet any one of the following: age 59½, death, disability, first-time home purchase (up to $10,000).
Taxation on Withdrawals Withdrawals are taxed as ordinary income (except those representing nondeductible contributions). Contributions – federally tax-free at any time. Taxation on earnings – see above.
Early Withdrawal Considerations Withdrawals taken prior to age 59½ are subject to a 10% IRS-imposed penalty unless one of several conditions is met. They include:
  • Death or disability
  • Catastrophic medical expenses
  • First-time home purchase (up to $10,000)
  • Higher education
  • Substantially equal periodic payments
  • Additional exceptions may apply
Withdrawals of earnings which do not meet the five-year exception are subject to a 10% IRS-imposed penalty unless one of several conditions is met. This includes:
  • Age 59½
  • Death or disability
  • Catastrophic medical expenses
  • First-time home purchase (up to $10,000)
  • Higher education
  • Substantially equal periodic payments
  • Additional exceptions may apply
Distribution Rules Must begin withdrawing by April 1 of the year after you reach age 70½. Not required to take distribution by any certain age.

*2014 tax year

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While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. For more information about our funds, including their full names, please see the Principal Funds, Inc. prospectus or call Sales Support at 1.800.787.1621.

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