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When it comes to saving for your future, one place to start is figuring out which Individual Retirement Account (IRA) best fits your needs — a Roth IRA or a traditional IRA. While there are similarities between both, they differ in important ways. Which IRA is right for you?

How They're Similar

For 2021 and 2022, both Roth and traditional IRAs allow you to invest up to $6,000 each year. Or, if you're age 50 or over and nearing retirement, you may invest up to $7,000 each year. The good news is that the money you invest grows tax-free; however, the main difference is when your contributions and earnings are taxed.

How the Plans Differ

The key difference between a Roth and traditional IRA is when you pay taxes. Roth IRA contributions are made after-tax and as such, earnings and withdrawals are generally tax-free. If you expect your income to go up and be in a higher tax bracket come retirement, this could be a good option.

If, however, you save for retirement using a traditional IRA, you could lower your tax liability now as your contributions could be tax-deductible. In other words, you may pay less in taxes now while investing for your future. However, you'll pay taxes on your withdrawals in retirement.

It's important to note, though, that the amount you deduct varies if you're also covered by an employer-sponsored plan through your job, as well as your tax filing status.

Traditional IRA

Roth IRA

Contribution Limits

$6,000 per year ($7,000 if 50 or above)

$6,000 per year ($7,000 if 50 or above)

Income Limits


Yes, depending on tax filing status


Contributions are tax-deductible, pay tax on withdrawals during retirement

No tax deductions, pay taxes now, no tax on withdrawals during retirement

Withdrawal Considerations

Required minimum distributions by age 72 (70½ for those who reached that age before January 1, 2021).

No required minimum distribution


No income cap, save money now

Can contribute past age 70½, have tax-free withdrawals


When it comes to eligibility, nearly anyone can save for retirement using a traditional IRA. So if you have taxable income, you qualify. (Prior to January 1, 2020, those age 70½ or older were ineligible to contribute.) According to the latest rules on required minimum distributions, people who save using a traditional IRA must start withdrawing money in the calendar year after they reach the age of 72, if born after June 30, 1949. Those born before July 1, 1949, must begin minimum distributions in the year following the calendar year in which they reach the age of 70½. As far as income limits, the traditional IRA has no income restrictions.

On the other hand, a Roth IRA has some income restrictions to consider. For example, in 2020, your Modified Adjusted Gross Income (MAGI) must be less than $124,000 – $196,000 for Married Filing Jointly or Qualifying Widow(er) – in order to contribute up to the limit. There are some nuances regarding how much you can contribute and at what point you are ineligible, depending on your tax filing status. The Roth IRA has no required minimum distribution, and you may still contribute past the age of 70½.

Roth IRA and Traditional IRA Withdrawals

As noted above, you must start withdrawing money from a traditional IRA either at age 72 or 70½, depending on when you were born, which you don’t have to do with a Roth IRA. Using both of these plans, you can technically withdraw money at any time.

Your traditional IRA withdrawals are subject to taxation, while any qualified distributions from a Roth IRA will not be taxed. However, for both IRAs you could pay an extra 10% penalty if you withdraw early, prior to age 59½, unless you are eligible for an exception. Sometimes people will move funds from their retirement accounts because of financial hardships such as medical conditions.

Deciding which IRA is right for you can be tough, and there are implications to consider now and for your future. However, investing for your retirement is a crucial step to your financial stability. To help you determine which type of IRA makes the most sense for you, be sure to schedule an appointment with a financial professional at a Key branch or Private Bank office near you.

Investment products are offered through Key Investment Services LLC (KIS), member FINRA/SIPC and SEC registered investment advisor.

Investment products made available through KIS are:


KIS and KeyBank are separate entities, and when you buy or sell securities you are doing business with KIS and not KeyBank.

KIS and its representatives do not provide tax advice. Individuals should consult their personal tax advisor before making any tax-related investment decisions.

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