Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
You must be at least 18 years old to open an IRA with Fidelity.
1. For 2021, full deductibility of a contribution is available to active participants whose 2021 Modified Adjusted Gross Income (MAGI) is $105,000 or less (joint) and $66,000 or less (single); partial deductibility for MAGI up to $125,000 (joint) and $76,000 (single). In addition, full deductibility of a contribution is available for working or nonworking spouses of plan participants who are not themselves covered by an employer-sponsored plan whose MAGI is less than $198,000; and partial deductibility for MAGI up to $208,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax-deductible, regardless of your income.
2.
The change in the RMD age requirement from 70½ to 72 only applies to individuals who turn 70½ on or after January 1, 2020. Please speak with your tax advisor regarding the impact of this change on future RMDs.
3. While Fidelity Personalized Planning & Advice is not currently designed for investors who are retired or within 3 years of retirement, we have other great services we can discuss with you if you call us at 800-343-3548 and ask for "Planning".
4. Clients with $250,000 or more at Fidelity may be eligible for dedicated Fidelity advisor access.
5.
No account fees or minimums to open Fidelity retail IRA accounts. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs), and commissions, interest charges, and other expenses for transactions, may still apply. See Fidelity.com/commissions for further details.
Zero account minimums apply to retail brokerage accounts only. Account minimums may apply to certain account types (e.g., managed accounts) and/or the purchase of some Fidelity mutual funds that have a minimum investment requirement. See Fidelity.com/commissions and/or the fund's prospectus for details.
6. There is no minimum amount required to open a Fidelity Go account. However, in order for us to invest your money according to the investment strategy you've chosen, your account balance must be at least $10. The Fidelity Go program advisory fee is calculated and charged at the account level.
7. To be eligible for the Fidelity Personalized Planning & Advice program you must invest and maintain a minimum of $25,000, in the aggregate, in one or more of your program accounts. A program account will not be invested according to a selected asset allocation strategy until the account has a balance of at least $10.
Fidelity Go® provides discretionary investment management for a fee. Fidelity® Personalized Planning & Advice provides non-discretionary financial planning and discretionary investment management for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS and NFS are Fidelity Investments companies.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
Traditional IRA vs. Roth IRA: What's the difference?
Updated
2022-07-14T20:09:11Z
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- A traditional IRA is funded by pre-tax income, while Roth IRAs are funded by after-tax dollars.
- Unlike traditional IRAs, contributions made to a Roth IRA aren't tax deductible.
- For both traditional and Roth IRAs, you can contribute at any age and savings grow while untaxed.
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The two main types of individual retirement accounts, or IRAs, are traditional IRAs and Roth IRAs. These differ from their contribution limits to distribution requirements. However, you don't always have to choose one over the other.
"People assume you only have to have one type of IRA, but that's not the case," says Liz Young, head of investment strategy at SoFi. A Roth IRA may make sense at one point in your life, while a traditional IRA can make sense at another. At times, you'll want to keep both tax-advantaged accounts open.
Find out when each account makes sense for you.
Traditional IRAs and Roth IRAs vary in their tax advantages and who can contribute to them.
- Traditional IRAs make contributions tax-deductible up to a certain amount, grow savings tax-free, and subject withdrawals to income tax.
- Roth IRAs are available under a certain income threshold, grow savings tax-free, and offer tax-free withdrawals.
The Internal Revenue Service (IRS) limits the amount you can contribute each year to all of your traditional and Roth IRAs. For 2022, that limit is $6,000, or $7,000 if you're 50 years or older.
A traditional IRA is a retirement account that offers tax-deductible contributions and tax-deferred retirement savings. It's available to all income brackets, although high-income taxpayers may face some drawbacks.
"As your income grows and you start earning more money and [are] pushed into higher tax brackets, a traditional IRA starts to make more sense," says Kathleen Kenealy, Certified Financial Planner and director of financial planning at Boston Private, a Silicon Valley Bank company.
Traditional IRA contributions: You (and your spouse) can make regular contributions to a traditional IRA at any age. You can deduct contributions in full if you and your spouse don't have an employer-sponsored retirement plan. If you or your spouse do, your deduction amount will depend on your income.
Over the years, your money that grows in the account is not subject to taxes during that time.
Traditional IRA withdrawals: Distributions, or withdrawals, from traditional IRAs are taxed according to your tax bracket in retirement.
You must start taking distributions, known as required minimum distributions (RMDs), by April 1 of the year after you turn 72 and by December 31 of later years. Withdrawing money before you turn 59.5 will result in a 10% penalty, with some exceptions.
Roth IRAs offer tax-deferred savings and tax-free withdrawals, making them a smart choice for those who expect higher tax rates in retirement.
Roth IRA contributions: A Roth IRA is available only under income thresholds set by the IRS. If you qualify, you can make contributions to a Roth IRA at any age.
Your money in a Roth IRA will grow over time and is not taxable.
Roth IRA withdrawals: Roth IRAs offer more flexibility when it comes to taking distributions. You can make withdrawals if you are disabled, once you reach age 59.5, or after five years from the tax year when you made your first contribution. Qualified distributions also include those that are made:
- To a beneficiary or to your estate after your death
- For qualified first home purchases (lifetime limit of $10,000)
- For qualified disasters
Roth IRAs don't impose RMDs, and you can continue contributing during retirement. "This is a useful tool to control your taxable income in retirement and supplement it with tax-free Roth IRA distributions — a move that is quite tactical," suggests Matt Rogers, Certified Financial Planner and director of financial planning at Fidelity's eMoney Advisor.
If you withdraw from a Roth IRA early and don't meet any exceptions, you will face a 10% tax penalty.
The bottom line
If there had to be a winner between the two, it would be a Roth IRA. Its savings grow tax-deferred, distributions are not taxed, and you often don't have to wait until retirement to use the money. Its main downside is that it's not available to everyone — mostly high-income individuals.
Traditional IRAs aren't without their benefits, though. Their savings also grow tax-deferred, and you often get a tax break for contributing to one. Just make sure to keep up with all of its requirements and limitations.
Lauren Perez is a New York City-based freelance writer who has been on the personal finance beat for five years. Her work has appeared in Forbes, MagnifyMoney, LendingTree, and SmartAsset. In addition to deposits and investing, Lauren can be found writing personal essays and covering culture.
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