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Traditional IRAs offer tax-deferred growth and the potential for tax-deductible contributions. Investors under age 70½ can contribute as long as they or a spouse have earned income equaling or exceeding their IRA contribution amount. There are no maximum income limits to participate, and penalty-free withdrawals can typically begin as early as age 59½.
Roth IRAs combine tax-deferred growth with tax-free withdrawals. Investors of any age can contribute as long as they or a spouse earn a salary and meet certain income requirements. Investment earnings are tax-free if you hold your account at least five years and have a qualifying event, such as reaching age 59½ or older at the time of withdrawal. Contributions to a Roth IRA are not tax-deductible.
Rollover IRAs allow retirees and job changers to transfer company retirement money to either a Traditional or Roth IRA. Direct rollovers to Traditional IRAs avoid taxes and penalties, enabling your entire account balance to continue growing tax-deferred. Rollovers to Roth IRAs are taxable, but qualified withdrawals are tax-free throughout retirement.
To further your understanding about IRAs, review and compare the different IRA options available to you.
IRAs allow investments up to an annual limit, along with special "catch-up" contributions for people age 50 and older. You can invest in more than one IRA in the same year, but your combined contributions cannot exceed the annual limit.
|Tax year||Regular contribution1||Catch-up contribution (age 50+)2|
1 Future contribution limits may be indexed to inflation and increased in $500 increments
2 Not indexed to inflation
|Traditional IRA||Roth IRA|
|Who can participate||Anyone under 70½ who works or has a spouse who works||Anyone of any age who works or has a spouse who works|
|Annual income limit||None (but may affect tax-deductibility of contributions)||2014: Eligibility starts to phase out at $114,000 for singles and $181,000 for joint tax filers
|Main benefit||Money grows on a tax-deferred basis||Qualified withdrawals are tax- free|
|Tax-deductible contributions||Yes, if you meet certain requirements||No|
|How are investments taxed||Deductible contributions and earnings are taxed as ordinary income upon withdrawal. Early withdrawals prior to age 59½ are generally subject to a 10% penalty unless certain IRS exceptions apply.||Earnings are tax-free after five years and age 59½ or upon death, disability or first-time home purchase. Early withdrawals are generally subject to taxes and a 10% penalty unless certain IRS exceptions apply.|
|Mandatory withdrawals||Must start at 70½ or upon account owner’s death for non-spouse beneficiaries||None during account owner's lifetime; required after death when withdrawn by non-spouse beneficiaries|
|Ideal investors||Qualify for tax-deductible contributions or plan to be in a lower tax bracket in retirement||Meet income requirements and plan to be in the same or a higher tax bracket in retirement|
Investors of any age can make a full or partial contribution to a Roth IRA, provided they or a spouse earn a salary and meet these requirements for adjusted gross income.
|Tax filing status||2013||2014|
|Full contribution||Partial contribution||Full contribution||Partial contribution|
|Single / Head of Household||Less than
|Married filing jointly||Less than
|Married filing separately||N/A||Less than
The information above is not intended to provide and should not be relied on for accounting, legal and tax advice or investment recommendations. The views and strategies described may not be suitable to all readers. Please contact your financial professional or tax advisor for additional information.
IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.