Since its initial introduction, few investment opportunities have helped more people prepare for retirement than the Individual Retirement Account (IRA). There are currently two different kinds of IRAs designed for retirement planning: the Traditional IRA and the Roth IRA. Deciding which one is best for you depends on your own unique set of circumstances. The first step is to determine your eligibility for the different IRAs, and then the suitability of each to your retirement plan. To find out your eligibility, take this short quiz.

The Traditional (deductible) IRA
1. Are you under age 70 1/2?
2. Do you have earned income?

If you answered “yes” to both of these questions and do not participate in an employer-sponsored plan, you are eligible to start contributing to a Traditional IRA today. Even if you do participate in an employer plan, you may still be eligible. It’s a good idea to check with a financial professional to get all the details.

The Roth IRA
1. Do you have earned income?
2. Are you single with an Adjusted Gross Income (AGI) below $95,000, OR married with a joint AGI below $150,000?

If you answered “yes” to both of these questions you are eligible to start contributing to a Roth IRA.

Contribution Limits

The contribution limits for both types of IRAs are listed below:

There are also catch-up provisions that allow additional contributions when certain criteria are met. It’s best to consult with your NEA Valuebuilder^® Financial Counselor to get all the information.

Determining which IRA is best for you

You may well be eligible for either IRA, so it’s a good idea to look at the benefits of each to determine which one best suits your retirement goals. Depending on your circumstances, contributions to a Traditional IRA may be tax deductible and the earnings grow tax-deferred. When distributions are taken from the IRA, however, they are taxable.

On the other hand, contributions to a Roth IRA are never tax deductible, but distributions are COMPLETELY TAX-FREE if the Roth IRA has been held for five years and the account owner has either attained age 59 1/2, died, become disabled or used the proceeds up to $10,000 (lifetime maximum) for a “first time” home purchase.

As with any major financial decision, it is wise to consult with a financial professional to weigh the benefits of each type of IRA. If you are not currently working with a financial advisor, an NEA Valuebuilder Financial Counselor will be happy to meet with you and discuss your choices. Both a Traditional and Roth IRA are available as part of the NEA Valuebuilder Program.