Which Individual Retirement Account (IRA) is right for you?
IRAs are a great way for you to save for the future. You can contribute up to a certain limit each year into your IRA and if you're over 50, you are allowed an additional "catch up" contribution. The tax advantages of a Traditional or Roth IRA depending on your annual income and whether you are covered by your company's retirement plan. Below is a table to help you understand some of the differences between a Traditional and Roth IRA.
>> | Traditional IRA
| Roth IRA
| |
|---|---|---|---|
| Overview | This Individual Retirement Account allows contributions to accumulate tax-deferred until withdrawn. This is a great option if you don't have an employer-sponsored retirement plan or want to supplement such a plan. | A Roth IRA provides tax-free withdrawals and non-deductible contributions to the account. Unlike a traditional IRA, a Roth IRA doesn't require you to take distributions and you can continue to contribute after age 70 1/2. | |
| Who Can Invest? | If a spouse is covered by Employer-Sponsored Plan AGI limit for deductibility is $79,000 or less for single status. $123,000 or less for married filing jointly. If you're not covered by a retirement plan at work, there is no AGI limit for the deduction. | While there are no age limitations, your adjusted gross income (AGI) must be less than $150,000 for single filers and less than $236,000 for 2025 for joint filers. There is a phase-out of contribution amounts as AGI approaches these upper limits. | |
| What Are The Tax Advantages? | If you are not an active participant in an employer-sponsored plan, your contributions are fully deductible. If you participate in an employer-sponsored plan, your contributions may be deductible based upon your adjusted gross income. No annual taxes due (tax-deferred) until withdrawn in retirement. | Contributions are not tax-deductible, yet your earnings grow tax-free. | |
| Are There Limits On Contributions? | You can contribute $7,000 for 2025; If age 50 or older contributions of $8,000 in 2025 or limited by earned income (whichever is less) can be made. | You can contribute $7,000 for 2025. If age 50 or older contributions of $8,000 for 2025 or limited by earned income (whichever is less) can be made. May be phased out as AGI approaches above upper limits. | |
| Is There A Deadline For Account Opening & Contributions? | Opening the account and making contributions for a specific year must be made by the tax filing deadline for that year. | Opening an account and making contributions for a specific year must be made by the tax filing deadline for that year. | |
| Do I Pay Taxes On Withdrawals? | Yes. Any withdrawals (except nondeductible contributions) are subject to regular income taxes. | No. All qualified withdrawals are tax-free. | |
| Are Withdrawals Required? | Yes, due to the SECURE Act, you do not have to take withdrawals until you reach age 73. | No. | |
| When Can I Make Withdrawals? | Withdrawals may incur a 10% penalty with exception of the following:
| Same criteria for Traditional IRA withdrawals, except Roth IRA withdrawals, cannot be taken without penalty until at least 5 years from the date of the first contribution or conversion. | |
| What are My Investment Options? | Horizon Bank offers both FDIC insured options such as Certificates of Deposit and non-FDIC options, including stocks and mutual funds, through Horizon Private Wealth Management. | ||
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