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Roth IRAs and Traditional IRAs

An Individual Retirement Account (IRA) is a tax–advantaged retirement account that you own and control. Earnings generated can compound on a tax–deferred basis until withdrawal. Please consider this information for educational purposes only. Please schedule a review with a financial professional1 to receive recommendations that may be suitable for you or in your best interest based on various personalized factors.

There are two types of IRAs: Traditional and Roth. Both types allow the same maximum annual contributions, based on your age. The maximum is reached when your combined contributions to all of your IRAs meets the limit. The two types of IRA differ in their qualifying criteria, withdrawal restrictions, and tax implications.

  • Traditional IRAs offer potential for tax-deductible contributions depending on your income level, participation in a workplace retirement plan, and marital status. Otherwise, contributions may be made post–tax.
  • Roth IRAs do not permit tax-deductible contributions. However, contributions with post-tax dollars can be withdrawn tax-free. If you are not eligible for tax-deductible contributions to a Traditional IRA due to a higher income, you may be eligible for a Roth IRA.

Compare Roth and Traditional IRAs side by side

Use the chart below to easily compare the features and qualifications of the two types of IRAs:
Feature / qualification Traditional IRA Roth IRA
Eligibility: Age No age limit when earned income is present No age limit
Eligibility: Income No income restrictions Generally, you can contribute to a Roth IRA if you have taxable compensation based on IRS set Modified AGI guidelines which can be viewed here under the Roth IRA contribution limit header.
Maximum Annual Contribution

Individual: $6,000
 

Married filing jointly: $12,000 (up to $6,000 each)

Individual: $6,000

 

Married filing jointly: $12,000 (up to $6,000 each)
Catch up contribution If you are age 50 or older in the year of contribution, eligible IRA holders can make an additional contribution of $1,000 If you are age 50 or older in the year of contribution, eligible IRA holders can make an additional contribution of $1,000
Tax Implications: Contributions May be tax deductible based on IRS guidelines which can be viewed here under the Claiming a tax deduction for your IRA contribution header. Contributions are not tax deductible
Tax Implications: Earnings Earnings are tax-deferred until withdrawn

Earnings are not subject to federal tax penalties if withdrawn after age 59½ and held for 5 years

 

Earnings are tax-free if taken as part of a qualifying withdrawal
Tax Implications: Withdrawals After age 59½, withdrawals are not subject to federal tax penalties, but may be subject to federal and state income taxes except under certain circumstances which can be found here. Contributions can be withdrawn at any time without penalty as long as held for five years except under certain circumstances which can be found here.
Age for Required Distributions Distributions must begin by April 1 of the year after turning age 72. For distributions to the account owner or a souse, the required minimum distributions are determined by dividing the prior year–end fair market value of the retirement account by the applicable distribution period or life expectancy. For any non-spouse beneficiary, the distribution period is 10 years after the end of year of the account owner’s death. In the case where the beneficiary is a minor child, the 10-year distribution period is extended to 10 years after the end of the year in which the child becomes age 18. There is no mandatory age for taking distributions

Compare Roth and Traditional IRAs side by side

Use the chart below to easily compare the features and qualifications of the two types of IRAs:
Feature / qualification Eligibility: Age
Traditional IRA No age limit when earned income is present
Roth IRA No age limit
Feature / qualification Eligibility: Income
Traditional IRA No income restrictions
Roth IRA Generally, you can contribute to a Roth IRA if you have taxable compensation based on IRS set Modified AGI guidelines which can be viewed here under the Roth IRA contribution limit header.
Feature / qualification Maximum Annual Contribution
Traditional IRA

Individual: $6,000
 

Married filing jointly: $12,000 (up to $6,000 each)
Roth IRA

Individual: $6,000

 

Married filing jointly: $12,000 (up to $6,000 each)
Feature / qualification Catch up contribution
Traditional IRA If you are age 50 or older in the year of contribution, eligible IRA holders can make an additional contribution of $1,000
Roth IRA If you are age 50 or older in the year of contribution, eligible IRA holders can make an additional contribution of $1,000
Feature / qualification Tax Implications: Contributions
Traditional IRA May be tax deductible based on IRS guidelines which can be viewed here under the Claiming a tax deduction for your IRA contribution header.
Roth IRA Contributions are not tax deductible
Feature / qualification Tax Implications: Earnings
Traditional IRA Earnings are tax-deferred until withdrawn
Roth IRA

Earnings are not subject to federal tax penalties if withdrawn after age 59½ and held for 5 years

 

Earnings are tax-free if taken as part of a qualifying withdrawal
Feature / qualification Tax Implications: Withdrawals
Traditional IRA After age 59½, withdrawals are not subject to federal tax penalties, but may be subject to federal and state income taxes except under certain circumstances which can be found here.
Roth IRA Contributions can be withdrawn at any time without penalty as long as held for five years except under certain circumstances which can be found here.
Feature / qualification Age for Required Distributions
Traditional IRA Distributions must begin by April 1 of the year after turning age 72. For distributions to the account owner or a souse, the required minimum distributions are determined by dividing the prior year–end fair market value of the retirement account by the applicable distribution period or life expectancy. For any non-spouse beneficiary, the distribution period is 10 years after the end of year of the account owner’s death. In the case where the beneficiary is a minor child, the 10-year distribution period is extended to 10 years after the end of the year in which the child becomes age 18.
Roth IRA There is no mandatory age for taking distributions

Call us at 800.662.3343 to schedule a financial review.

Investment, annuities, and variable life insurance products are offered by HSBC Securities (USA) Inc. (HSI), member NYSE/FINRA/SIPC. In California, HSI conducts insurance business as HSBC Securities Insurance Services. License #: OE67746. HSI is an affiliate of HSBC Bank USA, N.A. Whole life, universal life, term life, and other types of insurance are offered by HSBC Insurance Agency (USA) Inc., a wholly owned subsidiary of HSBC Bank USA, N.A. Products and services may vary by state and are not available in all states. California license #: OD36843.

Investments, Annuity and Insurance Products:

ARE NOT A DEPOSIT OR OTHER OBLIGATION OF THE BANK OR ANY OF ITS AFFILIATES
 ARE NOT FDIC INSURED
 ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
 ARE NOT GUARANTEED BY THE BANK OR ANY OF ITS AFFILIATES
 MAY LOSE VALUE

All decisions regarding the tax implications of your investment(s) should be made in consultation with your independent tax advisor.

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United States persons (including U.S. citizens and residents) are subject to U.S. taxation on their worldwide income and may be subject to tax and other filing obligations with respect to their U.S. and non–U.S. accounts – including, for example, Form TD F 90–22.1 (Report of Foreign Bank and Financial Accounts ("FBAR")). U.S. persons should consult a tax adviser for more information.

1 Financial professional refers to Financial Consultants (FCs), Investment Counselors (ICs), and High Net Worth Relationship Managers (HNWRMs). All offer bank products through HSBC Bank (USA) N.A, investments, annuities, and variable life insurance products through HSBC Securities (USA) Inc. and traditional insurance products through HSBC Insurance Agency (USA) Inc.

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