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Merrill, its afliates, and nancial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any nancial decisions.
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Investment products:
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Traditional IRA or Roth IRA
Which is right for you?
There are important differences between a traditional Individual Retirement Account (IRA) and a Roth IRA — and
your choice depends on factors such as your age, current income, distribution goals and tax objectives. Both types
of IRAs can help you enhance your total financial picture and potentially build wealth for retirement.
This fact sheet is intended to be educational in nature. You will need to check with your tax advisor to determine
whether you are eligible to contribute to a traditional or a Roth IRA.
What are the differences?
Traditional IRA
In general, almost anyone with earned income is eligible to
contribute to a traditional IRA.
1
By contributing to a traditional
IRA, your assets have the opportunity to grow tax-deferred
and distributions taken once you turn age 59½ generally are
taxed as ordinary income. (See page 2 for information regarding
a 10% additional federal tax that may apply if you take a
distribution before you turn age 59½.) Your contributions may be
tax-deductible, depending on your tax-return filing status, your
modified adjusted gross income and whether you or your spouse
are eligible to participate in employer-sponsored retirement plans.
The required beginning date for RMDs is age 73. You still may
defer your first RMD until April 1 of the year aer you turn age
73, however you will then be required to take two distributions
within that year.
2
Roth IRA
To be eligible to contribute to a Roth IRA, your Modified
Adjusted Gross Income (MAGI) must be below specified limits.
If you are eligible, your annual contributions are made with
aer-tax dollars and are not tax-deductible. (See the chart on
page 3 for detailed eligibility requirements and MAGI limits.)
However, you are not required to pay federal (and possibly
state) income tax on distributions of earnings if five years have
passed since the first day of the year in which you made your
first Roth IRA contribution or conversion, if earlier, and are age
59½ or older, or you meet another exception. Contributions can
be withdrawn at any time. The original account owner is never
required to take RMDs from a Roth IRA.
Annual contribution limits Traditional and Roth IRA
2024
For individuals under age 50 $7,000
For individuals age 50 and older
(includes catch-up contribution)
$8,000
What features do they share?
Build wealth for your retirement
• The contribution limits for both types of IRAs may increase
due to cost-of-living adjustments in future years. Your annual
contribution can be made at any time during a particular
year or as late as that year’s federal tax-return due date the
following year.
Diversify your portfolio
• Ability to choose from a wide range of investments, including
stocks, bonds and mutual funds.
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• Ability to rebalance the investments in your account regularly
without generating any current tax liability. Asset allocation,
diversification and rebalancing do not ensure a profit or
protect against loss in declining markets.
Careful consideration should be given to potentially
tax-advantaged investments held in your IRA
• Tax-exempt investments, such as municipal bonds, would be
subject to tax at the time of withdrawal from a traditional IRA,
because IRA distributions generally are taxable regardless of
whether certain investments held in your account are
otherwise tax-exempt.
• Dividends and earnings on investments in foreign securities
and foreign mutual funds may be subject to foreign
withholding taxes. A U.S. foreign tax credit may not be
available for those foreign withholding taxes on investments
in an IRA because there are no U.S. taxes owed until a
distribution is made. As a result, the effective yield on foreign
securities and foreign mutual funds held in your IRA may be
lower than the effective yield of identical investments held in a
non-retirement account.
• You may find it preferable to hold tax-exempt or foreign
investments in a taxable investment portfolio, should you have
one, instead of your IRA.
• Due to the potential generation of unrelated business taxable
income, you generally should consider holding any interest in
a flow-through entity (such as a partnership, limited liability
company or master limited partnership) in your taxable
investment portfolio, not in your IRA.
Please consult with your tax advisor if you have questions
regarding potentially tax-advantaged investments and your
specific tax situation.
Understand the early-withdrawal tax
• Taking distributions from traditional IRAs before you reach
age 59½ generally will result in not only ordinary income
tax, but also a 10% additional federal tax. Exceptions to this
additional tax include, but are not limited to, withdrawing
assets to buy your first home or to pay for qualified higher
education expenses. The 10% additional federal tax may also
apply to the taxable portion of early withdrawals from a Roth
IRA. Account owners may take qualified birth or adoption
distributions without incurring the additional 10% federal tax
on early withdrawals from an IRA. Qualified birth or adoption
distributions can be up to $5,000 per child and must be taken
within one year of the date of birth or the date the adoption is
finalized, as applicable.
• You also can withdraw Substantially Equal Periodic Payments
(SEPPs) from your IRA, calculated using one of three
methods, without incurring the 10% additional federal tax.
These distributions are still taxed as ordinary income and
must continue for the longer of five years or until you reach
age 59½.
3
• IRS Publication 590 provides more details if you need to take
an early distribution. You should consult your own tax advisor
before taking such a distribution.
What is a Roth IRA conversion?
A Roth IRA conversion occurs when you distribute assets from
an eligible pre-tax retirement account (such as a traditional IRA
or a pre-tax account in an employer-sponsored retirement plan)
and roll them into a Roth IRA, either directly or within 60 days of
the distribution. Through the conversion, the assets in the Roth
IRA become aer-tax assets that may create tax-free retirement
income, if the qualified distribution requirements are met, for
you and potentially for your beneficiaries. The amount of pre-tax
assets converted in a Roth IRA conversion are included in your
taxable income for the year the conversion occurs.
There are important tax considerations to understand and
evaluate before beginning a conversion. Talk to your tax advisor
and financial advisor before taking any distributions from an IRA
or your employer-sponsored retirement plan.
What are the benefits of a Roth IRA?
• A Roth IRA may potentially generate tax-free income for you
(or for your beneficiaries aer your death).
4
• Original account owners are not subject to RMD rules unlike
traditional IRAs. (Beneficiaries are required to take distributions
upon inheritance.)
2
• Qualified distributions are federal (and possibly state) income
tax-free.
5
How does a Roth IRA conversion work?
• Anyone (regardless of income level) can make a conversion,
but your ability to make a regular contribution to a Roth IRA
is still subject to existing MAGI limitations.
• When you convert, you must pay ordinary income tax on any
pre-tax assets that you transfer. To help maximize the potential
benefits of conversion, the money to pay the tax should come
from a source outside your retirement account(s).
• If you take a distribution of your retirement assets to pay the
associated conversion taxes, that distribution would itself be
subject to income taxes and a possible 10% additional tax prior
to age 59½.
• You can convert part or all of your pre-tax retirement account
to a Roth IRA.
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When does a Roth conversion make sense?
You may want to discuss Roth conversions with your financial
advisor and tax advisor if one or more of the following situations
apply to you:
• You expect to be in a higher tax bracket in retirement or you want
to diversify the tax status of your portfolio.
• Your current portfolio has declined in value, so converting now
could lower the tax obligation based on lower asset values.
• You don’t need the money in your retirement account to pay
for living expenses in retirement and you’d like to leave your
retirement account assets to your children or other heirs free
from federal (and possibly state) income taxes.
4
Determine which IRA is right for you
Traditional IRA Roth IRA
Eligibility Individuals with earned income are eligible
6
Individuals of any age with earned income are eligible
For 2024:
Single or head of household tax filers
• Full contributions
7
with MAGI of less than $146,000
• Partial contributions with MAGI between $146,000
and $161,000
Married, filing jointly
• Full contributions
7
with MAGI of less than $230,000
• Partial contributions with MAGI between $230,000
and $240,000
Married, filing separately*
• Partial contributions with MAGI between $0 and $10,000
For 2023:
Single or head of household tax filers
• Full contributions
7
with MAGI of less than $138,000
• Partial contributions with MAGI between $138,000
and $153,000
Married, filing jointly
• Full contributions
7
with MAGI of less than $218,000
• Partial contributions with MAGI between $218,000
and $228,000
Married, filing separately*
• Partial contributions with MAGI between $0 and $10,000
Tax
Deductibility of
Contributions
Contributions are tax-deductible if neither you nor your
spouse are eligible to participate in an employer-sponsored
retirement plan.
8
If you and your spouse are eligible to
participate, the deductibility limits are as follows:
For 2024:
Single and head of household tax filers
• Full deduction with MAGI of $77,000 or less
• Partial deduction with MAGI more than $77,000 but less
than $87,000
Married, filing jointly
• Full deduction with MAGI of $123,000 or less
• Partial deduction with MAGI more than $123,000 but less
than $143,000
Married, filing separately*
• Partial deduction with MAGI between $0 and $10,000
For 2023:
Single and head of household tax filers
• Full deduction with MAGI of $73,000 or less
• Partial deduction with MAGI more than $73,000 but less
than $83,000
Married, filing jointly
• Full deduction with MAGI of $116,000 or less
• Partial deduction with MAGI more than $116,000 but less
than $136,000
Married, filing separately*
• Partial deduction with MAGI between $0 and $10,000
Contributions are not tax-deductible
* If married, filing separately, but live apart for the entire calendar year, then phase-out ranges for single filing status apply.
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Traditional IRA Roth IRA
Taxation of
Earnings
Earnings will not be taxed until withdrawn Earnings are subject to tax only if they are not part of a
“qualified distribution.” (See Early-Withdrawal Tax below.)
Taxation of
Distributions
Withdrawals composed of earnings and deductible
contributions are subject to ordinary income tax (and
possibly a 10% additional federal tax for early withdrawal)
Qualified distributions are free of federal (and possibly state)
income tax
5
Required
Minimum
Distributions
(RMDs)
The required beginning date for RMDs is age 73. You still
may defer your first RMD until April 1 of the year aer you
turn age 73, however you will then be required to take two
distributions within that year (unless an exception applies).
2
None are required during the lifetime of the original
account owner
Early-
Withdrawal
Tax
Distributions before age 59½ may be subject to a 10% additional federal tax on the taxable portion of the distribution,
in addition to any ordinary income tax. Exceptions to this general rule include, but are not limited to, distributions for a
first-time home purchase, qualified higher education expenses, the account owner’s death or disability, IRS levy, SEPPs
and certain medical expenses. Account owners may take qualified birth or adoption distributions without incurring the
additional 10% federal tax on early withdrawals from an IRA. Qualified birth or adoption distributions can be up to $5,000
per child and must be taken within one year of the date of birth or the date the adoption is finalized, as applicable.
Cost
Considerations
There is no difference in cost for a traditional IRA or a Roth IRA. Any difference in cost is due to the underlying investments
held within the account. Both traditional and Roth IRAs offer the same variety of investment choices.
How can you get started?
If you’re seeking a potentially tax-advantaged way to invest for retirement, call your Merrill Lynch Wealth Management Advisor
to discuss whether a traditional or Roth IRA is appropriate for you. If you have a large account balance in a traditional IRA
or former employer’s retirement account, your financial advisor can work with you and your tax advisor to help you evaluate
whether a Roth conversion makes sense for your personal situation.
Unless you choose a Merrill Edge Self-Directed account, your financial advisor can help you develop an investment approach
that fits your individual financial circumstances and needs, including your risk tolerance, investment time horizon and liquidity
requirements. To learn more about Merrill services, visit ml.com.
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You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs,
and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer,
take a distribution, or leave the account where it is. Each choice may offer different investments and services, fees and expenses, withdrawal options,
required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal
judgments. These are complex choices and should be considered with care.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before
making any financial decisions.
For additional information on Roth and traditional IRAs, please refer to IRS Publication 590.
1
See eligibility chart on pages 3 and 4.
2
Effective 1/1/2023, the required beginning date is April 1 of the year after you turn age 73. You are required to take an RMD by December 31 each year after that. If you delay your
first RMD until April 1 in the year after you turn 73, you will be required to take two RMDs in that year. You may be subject to additional taxes if RMDs are missed. Please see your
tax advisor regarding your specific situation.
3
You should consult your tax advisor before beginning SEPPs. Failure to continue withdrawals for the required time or in the required amounts can result in retroactive assessment
of the 10% additional federal tax, plus interest on all prior SEPP distributions.
4
For both the original account owner and beneficiaries, qualified distributions from a Roth IRA are generally federal income tax-free. State taxes may apply in both cases. For
beneficiaries, there may be estate taxes due or additional tax on distributions of earnings and conversions. You should check with your tax advisor for questions specific to
your situation.
5
For a distribution from a Roth IRA to be federal (and possibly state) income tax-free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year
waiting period has been satisfied (this period begins January 1
of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older,
(ii) are disabled, (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000), or (iv) are deceased. If you receive a non-qualified
distribution from your Roth IRA, any earnings distributed generally will be subject to ordinary income tax, plus a 10% additional federal tax if received before age 59½ unless an
exception applies.
6
Anyone may make a Roth IRA or traditional IRA contribution if they have earned income regardless of their age. A spouse can also contribute on behalf of a spouse who has no
earned income provided the contributing spouse has enough earned income to cover the contributions. Regardless of your situation, you should consult with your professional tax
advisors before making any tax-related investment decisions.
7
For 2024, if you are not eligible to participate in an employer-sponsored retirement plan, but your spouse is eligible, you can make fully tax-deductible contributions to a Roth IRA if
you file jointly and your MAGI is $230,000 or less. You can make partially deductible contributions with MAGI more than $230,000 but less than $240,000. If you file separately, the
partial deduction phase-out for MAGI between $0 and $10,000 applies.
8
For 2024, if you are not eligible to participate in an employer-sponsored retirement plan, but your spouse is eligible, you can make fully tax-deductible contributions to a traditional
IRA if you file jointly and your MAGI is $123,000 or less. You can make partially deductible contributions with MAGI more than $123,000 but less than $143,000. If you file
separately, the partial deduction phase-out for MAGI between $0 and $10,000 applies.
If you open an Individual Retirement Account (IRA) with us, depending on the services you choose, Merrill Lynch, Pierce, Fenner & Smith Incorporated will act in the capacity as
investment advisor or a broker, and our role and obligations will vary as a result.
This material does not take into account a client’s particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for
the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are
important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations
of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their
differences, speak with your Merrill financial advisor.
When we make recommendations regarding securities or investment strategies (including as to rollovers and account types) with respect to retirement assets, we are a fiduciary
within the meaning of Title I of the Employee Retirement Income Security Act (ERISA) and/or Section 4975 of the Internal Revenue Code, as applicable.
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