|
Are the contributions tax-deductible?
In a traditional IRA, the contributions can be tax deductible if it is not an employer sponsored plan. But, you can also have a non-deductible traditional IRA if you do not meet eligibility requirements for deduction. If it is covered by an employer-sponsored plan, deductibility is determined by your modified adjusted gross income and
your tax filing status. But, there is no tax-deductible contribution for a Roth IRA.
Is there any penalty on early withdrawal?
Yes. For a
traditional IRA, there is a 10% penalty if you withdraw funds before you are 59 ½. But, the penalty is waived if withdrawals are for:
- Higher education expenses
- First time home purchase (up to $10,000)
- Death or disability
- Certain medical expenses
- Other exceptions apply
For a Roth IRA, there is no penalty if you are withdrawing your contribution. Otherwise, the conditions are similar as in a traditional IRA.
Are there income taxes on withdrawal of earnings?
Earnings from traditional IRAs are taxable when you start taking distributions. They are not taxable in the case of a Roth IRA under the following conditions:
- your account has been open for at least five years
- you are 59 1/2
- you a purchasing a home for the first time (limited up to $10,000) in case of any disability or your death
Are there income taxes on withdrawal of contributions?
If your contributions towards your traditional IRA were tax deductible then you will be taxed during withdrawal. However if you have a Roth IRA then you can withdraw contributions anytime without any penalty.
|
