Compare IRA Accounts

Traditional IRA versus Roth IRA

Both Traditional and Roth IRAs offer potential tax advantages as an incentive to save and invest for retirement. There are important differences, including differences in eligibility and tax treatment.

There is also a Rollover IRA option which is a Traditional IRA to which you plan to roll over retirement assets from an employer-sponsored qualified retirement plan or another IRA (other than a Roth IRA). You can use this account to maintain the tax-deferred status of your retirement assets. Learn more about Rollover IRAs.

What they have in common:

  • Annual Contribution limit for 2019 and 2020 – $6,000 ($7,000 age 50 and older)
  • Minimum investment – No minimum with Morgan Stanley Direct Access
  • Fees – No account maintenance, low balance or trade processing fees
  • Trade Commissions – $0 for online stock and ETF trades1

Comparison

Why choose this option

Traditional IRA

With a Traditional IRA, your earnings potentially grow tax deferred until you withdraw them in retirement and your contributions may be deductible on your income tax return (subject to certain limitations).

Roth IRA

With a Roth IRA, your earnings potentially grow tax deferred and, if certain conditions are met, can be withdrawn income tax-free in retirement. Your contributions are not deductible on your income tax return (i.e., after-tax contributions), but can generally be withdrawn income tax and penalty tax free at any time. Note, however, you may not be eligible to make regular contributions to a Roth IRA if your income exceeds certain thresholds.

Tax Deferral

Traditional IRA

  • •   Your earnings potentially grow tax deferred

Roth IRA

  • •   Your earnings potentially grow tax deferred

Income Eligibility

Traditional IRA

  • •   You must have sufficient earned income to contribute to a traditional  IRA
  • •   Unlike a Roth IRA, your eligibility to contribute to a traditional IRA will not be phased out if your income exceeds certain thresholds based on your tax filing status.  

Roth IRA

  • •   You must have sufficient earned income to contribute to a Roth IRA
  • •   Your eligibility to contribute to a Roth IRA will be phased out if your income exceeds certain thresholds based on your tax filing status. You can get more information on these contribution limits from the IRS website: www.IRS.gov.
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Contributions

Traditional IRA

  • •   Contributions can generally be made up until the annual IRS limit, provided you have sufficient earned income.
  • •   Your contributions may be deductible on your income tax return. If you or your spouse is an active participant in qualified retirement plan, your eligibility to deduct your contributions on your tax return will be phased out if your income exceeds certain thresholds based on your tax filing status.  You can get more information on these deductibility limits from the IRS website: www.IRS.gov
  • •   The annual IRS limit may change from year to year due to cost of living adjustments. The current limit is shown above. Note, as shown above, individuals who are at least 50 years old by the end of the tax year are generally eligible to make a $1,000 catch up contribution
  • •   The annual IRS limit applies to the total contributions made on your behalf to all your IRAs (Traditional and Roth IRAs) for the year. 

Roth IRA

  • •   Contributions can generally be made up until the annual IRS limit, provided you have sufficient earned income.
  • •   Your contributions are not deductible on your income tax return.
  • •   The annual IRS limit may change from year to year due to cost of living adjustments. The current limit is shown above. Note, as shown above, individuals who are at least 50 years old by the end of the tax year are generally eligible to make a $1,000 catch up contribution.
  • •   The annual IRS limit applies to the total contributions made on your behalf to all your IRAs (Traditional and Roth IRAs) for the year.

Withdrawals

Traditional IRA

  • •   Distributions are generally subject to ordinary income taxes and, if made before age 59 ½, may be subject to a 10% penalty tax (unless an exception applies).
  • •   Required minimum distributions (RMDs) must be taken beginning the year you turn age 70 (if you were born before July 1, 1949) or 72 (if you were born after June 30, 1949). RMD rules apply to traditional IRAs after the death of the traditional IRA owner

Roth IRA

  • •   Distributions are generally not subject to income taxes if the qualified distribution requirements have been met. To be a federal income tax-free qualified distribution, the distribution must (a) occur after the Roth IRA owner’s 5 tax-year holding period, and (b) be made on or after the owner reaches age 59 1/2, due to the owner’s death or qualifying disability, or for a qualified first-time homebuyer purchase ($10,000 lifetime maximum).
  • •   Distributions of earnings before satisfying the qualified distributions requirements are generally subject to ordinary income taxes and, if made before age 59 ½, may be subject to a 10% penalty tax (unless an exception applies). 
  • •   Distributions of your after-tax contributions are generally not subject ordinary income taxes or the 10% penalty tax for early distributions.
  • •   No required minimum distribution (RMD) during the Roth IRA owner’s lifetime (note: RMD rules apply to Roth IRAs after the death of the Roth IRA owner).

For more about IRA contributions withdrawals, and eligibility, please visit www.IRS.gov

This chart does not address state and local income taxes. The state income tax treatment of contributions to, and distributions from, your traditional or Roth IRA may vary based on your state of residence. You should discuss the state tax treatment of your IRA with your own tax advisor.