Traditional and Roth Individual Retirement
Accounts (IRAs): A Primer
John J. Topoleski
Analyst in Income Security
January 30, 2013
Congressional Research Service
7-5700
www.crs.gov
RL34397
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Summary
In response to concerns over the adequacy of retirement savings, Congress has created incentives
to encourage individuals to save more for retirement through a variety of retirement plans. Some
retirement plans are employer-sponsored, such as 401(k) plans, and others are established by
individual employees, such as Individual Retirement Accounts (IRAs).
This report describes the primary features of two common retirement savings accounts that are
available to individuals. Although the accounts have many features in common, they differ in
some very important aspects. Both traditional and Roth IRAs offer tax incentives to encourage
individuals to save for retirement. Contributions to traditional IRAs may be tax-deductible for
taxpayers who (1) are not covered by a retirement plan at their place of employment or (2) have
income below specified limits. Contributions to Roth IRAs are not tax-deductible and eligibility
is limited to those with incomes under specified limits.
The tax treatment of distributions from traditional and Roth IRAs differs. Distributions from
traditional IRAs are generally included in taxable income whereas distributions from Roth IRAs
are not included in taxable income. Some distributions may be subject to an additional 10% tax
penalty, unless the distribution is for a reason specified in the Internal Revenue Code (for
example, distributions from IRAs after the individual is age 59 ½ or older are not subject to the
early withdrawal penalty).
Individuals may rollover eligible distributions from other retirement accounts (such as an account
balance from a 401(k) plans upon leaving an employer) into IRAs. Rollovers preserve retirement
savings by allowing investment earnings on the funds in the retirement accounts to accrue on a
tax-deferred, in the case of traditional IRAs, or a tax-free basis, in the case of Roth IRAs.
The Retirement Savings Contribution Credit (also known as the Saver’s Credit) is a non-
refundable tax credit of up to $1,000. It was authorized in 2001 to encourage retirement savings
among individuals with income under specified limits.
The report explains the eligibility requirements, contribution limits, tax deductibility of
contributions, and rules for withdrawing funds from the accounts. It also describes the Saver’s
Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005 and the Midwestern
storms in 2008 to exempt distributions to those affected by the disasters from the 10% early
withdrawal penalty.
This report will be updated as circumstances warrant.

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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Contents
Introduction ...................................................................................................................................... 1
IRA Assets and Sources of Funds .................................................................................................... 1
Traditional IRAs .............................................................................................................................. 3
Eligibility ................................................................................................................................... 3
Contributions ............................................................................................................................. 4
Investment Options .................................................................................................................... 4
Deductibility of Contributions ................................................................................................... 4
Withdrawals ............................................................................................................................... 6
Early Distributions ..................................................................................................................... 7
Rollovers.................................................................................................................................... 7
Inherited IRAs ........................................................................................................................... 8
Roth IRAs ........................................................................................................................................ 9
Eligibility and Contribution Limits ........................................................................................... 9
Investment Options .................................................................................................................. 10
Conversions and Rollovers ...................................................................................................... 10
Withdrawals ............................................................................................................................. 10
Return of Regular Contributions ....................................................................................... 10
Qualified Distributions ...................................................................................................... 11
Non-Qualified Distributions .............................................................................................. 11
Distributions after Roth IRA Owner’s Death .......................................................................... 11
Retirement Savings Contribution Credit ........................................................................................ 12

Tables
Table 1. Traditional and Roth IRAs: End of Year Assets ................................................................. 2
Table 2. Traditional IRAs: Source of Funds .................................................................................... 2
Table 3. Number of Households with IRAs in 2007 and 2010 ........................................................ 2
Table 4. IRA Account Balances in 2007 and 2010 .......................................................................... 3
Table 5. Deductibility of IRA Contributions for Individuals Not Covered by a Plan at
Work for 2012 and 2013 ............................................................................................................... 5
Table 6. Deductibility of IRA Contributions for Individuals Covered by a Plan at Work
for 2012 and 2013 ......................................................................................................................... 6
Table 7. Inherited IRA Distribution Rules ....................................................................................... 9
Table 8. Roth IRA Eligibility and Contribution Limits for 2012 and 2013 ................................... 12
Table 9. Retirement Saving Contribution Credit Income Limits for 2012 and 2013 ..................... 13

Appendixes
Appendix. Qualified Distributions Related to Natural Disasters ................................................... 14

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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Contacts
Author Contact Information........................................................................................................... 15

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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Introduction
Individual Retirement Accounts (IRAs) are tax-advantaged accounts that individuals (or married
couples) can establish in order to accumulate funds for retirement. Depending on the type of IRA,
contributions may be made on a pre-tax or post-tax basis, and investment earnings are either tax-
deferred or tax-free.1
IRAs were first authorized by the Employee Retirement Income Security Act of 1974 (ERISA;
P.L. 93-406). Originally limited to workers without pension coverage, all workers and spouses
were made eligible for IRAs by the Economic Recovery Act of 1981 (P.L. 97-34). The Tax
Reform Act of 1986 (P.L. 99-514) limited the eligibility for tax-deductible contributions to
individuals whose employers do not sponsor plans and to those whose employers sponsor plans
but who have earnings below certain thresholds. The Taxpayer Relief Act of 1997 (P.L. 105-34)
allowed for certain penalty-free withdrawals and authorized the Roth IRA, which provides tax-
free growth from after-tax contributions.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) significantly
affected the contribution limits in these plans in three ways: (1) it increased the limits, (2) it
indexed the limits to inflation, and (3) it allowed for individuals aged 50 and older to make
additional “catch-up” contributions. Among other provisions, the Pension Protection Act of 2006
(P.L. 109-280) temporally allowed for tax-free distributions for charitable contributions; made
permanent the indexing of contribution limits to inflation; and allowed taxpayers to direct the IRS
to deposit tax refunds directly into an IRA.2
This report describes the two kinds of IRAs that individual employees can establish: traditional
IRAs and Roth IRAs.3 It describes the rules regarding eligibility, contributions, and withdrawals.
It also describes a tax credit for retirement savings contributions. An Appendix explains rules
related to penalty-free distributions for those affected by the 2005 Gulf of Mexico hurricanes and
the 2008 Midwestern floods. The appendix also describes relief provided by the IRS to those
affected by Hurricane Sandy.
IRA Assets and Sources of Funds
Table 1 contains data on the end-of-year assets in traditional and Roth IRAs from 2002 to 2011.
According to the Investment Company Institute, traditional IRAs held much more in assets than
Roth IRAs. At the end of 2011, there was $4.3 trillion held in traditional IRAs and $266 billion
held in Roth IRAs. Table 2 indicates that within traditional IRAs, more funds flowed from

1 For more information on the tax treatment of retirement savings, including IRAs, see U.S. Congress, Joint Committee
on Taxation, Present Law And Background Relating To The Tax Treatment Of Retirement Savings, prepared by Joint
Committee on Taxation, 112th Cong., 2nd sess., April 13, 2012, JCX-32-12.
2 See also 26 U.S.C. §408 for traditional IRAs and 26 U.S.C. §408A for Roth IRAs.
3 For additional information, see CRS Report RL30255, Individual Retirement Accounts (IRAs): Issues and Proposed
Expansion, by Thomas L. Hungerford and Jane G. Gravelle and CRS Report RS22019, IRAs and Other Savings
Incentives: A Brief Overview, by Jane G. Gravelle. There are also two kinds of IRAs established by employers for
employees in small businesses: Simplified Employee Pensions (SEP-IRA) and Savings Incentive Match Plans for
Employees (SIMPLE-IRA). These may be the subject of a future CRS report.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

rollovers from employer-sponsored pensions compared to funds from regular contributions.4 For
example, in 2008 (the latest year for which data are available) funds from rollovers were $272.1
billion, whereas funds from contributions were only $13.4 billion. Table 3 indicates that nearly as
many households had traditional IRAs as households that had Roth and rollover IRAs combined.
However, Table 4 indicates that in 2010 the median balance in rollover IRAs was 39.4% larger
than the median account balance in traditional IRAs. In 2010, the total amount in rollover IRAs
was only slightly larger than the total amount in traditional IRAs ($2.118 trillion versus $2.095
trillion). The number of households with a traditional or rollover IRA decreased from 2007 to
2010, whereas the number of households with a Roth IRA increased slightly from 11.0 million to
11.2 million.
Table 1. Traditional and Roth IRAs: End of Year Assets
(in billions of dollars)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Traditional
$2,322 $2,719 $2,957 $3,034 $3,722 $4,187 $3,257 $3,855 $4,250 $4,280
IRAs
Roth
IRAs
78 106 140 156 196 232 177 215 265 266
Source: CRS table using data from the Investment Company Institute, The U.S. Retirement Market, Third
Quarter 2012, Table 7, available at http://www.ici.org/info/ret_12_q3_data.xls.
Table 2. Traditional IRAs: Source of Funds
(in billions of dollars)

2002 2003 2004 2005 2006 2007 2008
Rollovers from Employer-
$204.4 $205.0 $214.9 $228.5 $282.0 $316.6 $272.1
Sponsored Pensions
Contributions from Account
12.4 12.3 12.6 13.4 14.3 14.4 13.4
Holders
Source: CRS table using data from the Investment Company Institute, The U.S. Retirement Market, Third
Quarter 2012, Table 8, available at http://www.ici.org/info/ret_12_q3_data.xls.
Table 3. Number of Households with IRAs in 2007 and 2010
2007 Number of Households
2010 Number of Households

(millions)
(millions)
Traditional IRA
20.1
18.4
Roth IRA
11.0
11.2
Rollover IRA
12.0
11.8
Only rollover IRA
7.6
6.7
Rol over and also either
4.4 5.1
traditional or Roth IRA

4 Generally, rollovers are tax-free distributions of assets from one retirement plan that are contributed to a second
retirement plan. Regular contributions are contributions to IRAs that are made from individuals’ pre- or post-tax
income (subject to the rules of the particular type of IRA).
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

2007 Number of Households
2010 Number of Households

(millions)
(millions)
Has any kind of IRA
35.2
32.8
Source: CRS Analysis of 2007 and 2010 Survey of Consumer Finances.
Table 4. IRA Account Balances in 2007 and 2010
Inflation Adjusted 2010 Dol ar Amounts
Traditional
IRA
Roth IRA
Rollover IRA

2007 2010 2007 2010 2007 2010
Median
balance
$30,498
$38,000
$11,884
$15,100
$55,738
$53,000
(dollars)
Average
balance
$93,584
$113,990
$31,853
$48,198
$167,547
$179,001
(dollars)
Total of
account
balances
$1,884.3
$2.095.1
$351.9
$541.9
$2,006.9
$2,117.5
(billions of
dollars)
Source: CRS Analysis of 2007 and 2010 Survey of Consumer Finances.
Note: CRS adjusted the 2007 dol ar amounts for inflation using the monthly averages for the Consumer Price
Index, Al Urban Consumers (CPI-U) in 2007 and 2010.
Traditional IRAs
Traditional IRAs are funded by workers’ contributions, which may be tax-deductible. The
contributions accrue investment earnings in an account, and these earnings are used as a basis for
retirement income. Among the benefits of traditional IRAs, two are (1) pre-tax contributions
provide larger bases for accumulating investment earnings and, thus, provide larger account
balances at retirement than if the money had been placed in taxable accounts; and (2) taxes are
paid when funds are distributed. Since income tax rates in retirement are often lower than during
working life, traditional IRA holders are likely to pay less in taxes when contributions are
withdrawn than when the income was earned.
Eligibility
Individuals who are less than 70½ years old in a year and receive taxable compensation can set up
and contribute to IRAs. Examples of compensation include wages, salaries, tips, commissions,
self-employment income, alimony, and nontaxable combat pay. Individuals who receive income
only from non-compensation sources cannot contribute to IRAs.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Contributions
Individuals may contribute either their gross compensation or the contribution limit, whichever is
lower. In 2012, the contribution limit was $5,000 and in 2013 the limit is $5,500. Since 2009, the
contribution limit has been indexed to inflation, although the change in the Consumer Price Index
was insufficient for a cost-of-living adjustment to the 2011 or 2012 contribution limit. Individuals
aged 50 and older may make additional $1,000 catch-up contributions. For households that file a
joint return, spouses may contribute an amount equal to the couple’s total compensation (reduced
by the spouse’s IRA contributions) or the contribution limit ($5,500 each, if younger than the age
of 50, and $6,500 each, if 50 years or older), whichever is lower. Contributions that exceed the
contribution limit and are not withdrawn by the due date for the tax return for that year are
considered excess contributions and are subject to a 6% “excess contribution” tax. Contributions
made between January 1 and April 15 may be designated for either the current year or the
previous year.
Because IRAs were intended for workers without an employer-sponsored pension to save for
retirement, contributions to an IRA may only come from income from work, such as wages and
tips. The following non-compensation sources of income cannot be used for IRA contributions:
• earnings from property, interest, or dividends;
• pension or annuity income;
• deferred compensation;
• income from partnerships for which an individual does not provide services that
are a material income-producing factor; and
• foreign earned income.
Investment Options
IRAs can be set up through many financial institutions, such as banks, credit unions, mutual
funds, life insurance companies, or stock brokerages. Individuals have an array of investment
choices offered by the financial institutions and can transfer their accounts to other financial
institutions if they are unhappy with their choices.
Several transactions could result in additional taxes or the loss of IRA status. These transactions
include borrowing from IRAs, using IRAs as collateral for loans, selling property to IRAs, and
investing in collectibles like artwork, antiques, metals, gems, stamps, alcoholic beverages, and
most coins.5
Deductibility of Contributions
IRA contributions may be non-tax-deductible, partially tax-deductible, or fully tax-deductible,
depending on whether the individual or spouse is covered by a pension plan at work and the level
of adjusted gross income. Individuals are covered by a retirement plan if (1) the individuals or

5 Gold, silver, and platinum coins issued by the U.S. Treasury, and gold, silver, palladium, and platinum bullion are
permissible.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

their employers have made contributions to a defined contribution pension plan, or (2) the
individuals are eligible for a defined benefit pension plan (even if they refuse participation).
For individuals and households not covered by a pension plan at work, Table 5 contains the
income levels at which they may deduct all, some, or none of their IRA contributions, depending
on the spouse’s pension coverage and the household’s adjusted gross income. Individuals without
employer-sponsored pensions and, if married, whose spouse also does not have pension coverage
may deduct up to the contribution limit from their income taxes regardless of their adjusted gross
income.
For individuals and households who are covered by a pension plan at work, Table 6 contains the
income levels at which they may deduct all, some, or none of their IRA contributions, depending
on the individual’s or household’s adjusted gross income.
Individuals may still contribute to IRAs up to the contribution limit even if the contribution is
non-deductible. Non-deductible contributions come from post-tax income, not pre-tax income.
One advantage to placing post-tax income in traditional IRAs is that investment earnings on non-
deductible contributions are not taxed until distributed. Only contributions greater than the
contribution limits as described above are considered excess contributions. Worksheets for
computing partial deductions are included in IRS Publication 590, Individual Retirement
Arrangements (IRAs).6
Table 5. Deductibility of IRA Contributions for Individuals
Not Covered by a Plan at Work for 2012 and 2013
2012 Adjusted
2013 Adjusted
Deduction
Filing Status
Gross Income
Gross Income
Allowed
Single, head of household, qualifying widow(er), or
Any amount
Any amount
Full deduction
married filing jointly or separately with a spouse
who is not covered by a plan at work
Married filing jointly or separately with a spouse
$173,000 or less
$178,000 or less
full deduction
who is covered by a plan at work
More than $173,000
More than $178,000
Partial
but less than
but less than
deduction
$183,000
$188,000
$183,000 or more
$188,000 or more
No deduction
Married filing separately with a spouse who is
Less than $10,000
Less than $10,000
Partial
covered by a plan at work
deduction
$10,000 or more
$10,000 or more
No deduction
Source: CRS analysis of IRS Publication 590 and IRS News Release IR-2012-77.

6 Available at http://www.irs.gov/pub/irs-pdf/p590.pdf.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Table 6. Deductibility of IRA Contributions for Individuals
Covered by a Plan at Work for 2012 and 2013
Filing Status
2012 Adjusted
2013 Adjusted
Deduction
Gross Income
Gross Income
Allowed
Single or head of household
$58,000 or less
$59,000 or less
Ful deduction
More than $58,000 but less
More than $59,000 but less
Partial deduction
than $68,000
than $69,000
$68,000 or more
$69,000 or more
No deduction
Married filing jointly or
$92,000 or less
$95,000 or less
Full deduction
qualifying widow(er)
More than $92,000 but less
More than $95,000 but less
Partial deduction
than $112,000
than $112,000
$112,000 or more
$115,000 or more
No deduction
Married filing separately
Less than $10,000
Less than $10,000
Partial deduction
$10,000 or more
$10,000 or more
No deduction
Source: CRS analysis of IRS Publication 590 and IRS News Release IR-2012-77.
Withdrawals
Withdrawals from IRAs are subject to income tax in the year that they are received.7 Early
distributions are withdrawals made before the age of 59½. Early distributions may be subject to
an additional 10% penalty.
To ensure that IRAs are used for retirement income and not for bequests, IRA holders must begin
making withdrawals by April 1 of the year after reaching the age of 70½ (the required beginning
date). The minimum amount that must be withdrawn (the required minimum distribution) is
found by dividing the account balance on December 31 of the year preceding the distribution by
the IRA owner’s life expectancy as found in IRS Publication 590.8 Although females live longer
on average than males, separate life expectancy tables for males and females are not used for this
purpose by the IRS.9 Required minimum distributions must be received by December 31 of each
year. Failure to take the required minimum distribution results in 50% excise tax on the amount
not distributed as required. Congress has suspended the RMD requirement for 2009.10

7 For a detailed explanation of withdrawals from IRAs, see CRS Report R40192, Early Withdrawals and Required
Minimum Distributions in Retirement Accounts: Issues for Congress, by John J. Topoleski.
8 Life expectancy is calculated differently depending on whether the account holder is single and is an IRA beneficiary,
has a spouse who is more than 10 years younger, has a spouse who is not more than 10 years younger, whose spouse is
not the sole beneficiary, or is unmarried.
9 The Supreme Court ruled in Arizona Governing Comm. v. Norris, 463 U.S. 1073 (1983), that employer-provided
pension plans must use unisex tables in calculating monthly annuity benefits. Citing this ruling, the IRS constructs its
own unisex life expectancy tables. See 26 U.S.C. §417(e)(3)(A)(ii).
10 See CRS Report R40192, Early Withdrawals and Required Minimum Distributions in Retirement Accounts: Issues
for Congress, by John J. Topoleski.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Beginning in 2007, distributions from IRAs after the age of 70½ could be made directly to
qualified charities and excluded from gross income. This provision for Qualified Charitable
Distributions expires December 31, 2013.11
Early Distributions
Early distributions are withdrawals made before the age of 59½. Early distributions—just like
distributions after the age of 59½—are subject to federal income tax. In order to discourage the
use of IRA funds for pre-retirement uses, most early distributions are subject to a 10% tax
penalty.12 The early withdrawal penalty does not apply to distributions before the age of 59½ if
they
• occur if the individual is a beneficiary of a deceased IRA owner;
• occur if the individual is disabled;
• are in substantially equal payments over the account holder’s life expectancy;
• are received after separation from employment after the age of 55;
• are for unreimbursed medical expenses in excess of 7.5% of adjusted gross
income;
• are for medical insurance premiums in the case of unemployment;
• are used for higher education expenses;
• are used to build, buy, or rebuild a first home up to a $10,000 withdrawal limit;
• occur if the individual is a reservist called to active duty after September 11,
2001;
• were distributions to residents in areas affected by Hurricanes Katrina, Rita, and
Wilma from around the storms’ landfalls to January 1, 2007; or
• were distributions to residents in areas affected by the Midwestern floods in 2008
from after the applicable disaster date and before January 1, 2010.
General “hardship” exceptions for penalty-free distributions from IRAs do not exist as individuals
may make withdrawals from IRAs without a reason.
Rollovers
Rollovers are transfers of assets from one retirement plan to another upon separation from the
original employer. Rollovers are not subject to the 59½ rule, the 10% penalty, or the contribution
limit. Rollovers can come from traditional IRAs, employers’ qualified retirement plans (e.g.,
401(k) plans), deferred compensation plans of state or local governments (Section 457 plans),
tax-sheltered annuities (Section 403(b) plans), or the Thrift Savings Plan for federal employees.

11 See CRS Report RS22766, Qualified Charitable Distributions from Individual Retirement Accounts: A Fact Sheet,
by John J. Topoleski.
12 See 26 U.S.C. §72(t).
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Rollovers can be either direct trustee-to-trustee transfers or issued directly to individuals who
then deposit the rollovers into traditional IRAs. Individuals have 60 days to make the rollover
contributions. Rollovers not completed within 60 days are considered taxable distributions and
may be subject to the 10% early withdrawal penalty. In addition, in cases where individuals
directly receive a rollover, 20% of the rollover is withheld for tax purposes. Direct trustee-to-
trustee transfers are not subject to withholding taxes. In cases where individuals directly receive a
rollover, they must have an amount equal to the 20% withheld available from other sources to
place in the new IRA. If the entire distribution is rolled over within 60 days, the amount withheld
is applied to the individuals’ income taxes paid for the year.
Inherited IRAs
When the owner of an IRA dies, ownership passes to the account’s designated beneficiary or, if
no beneficiary has been named, to the decedent’s estate. Federal law has different distribution
requirements depending on whether the new owner is a
• designated beneficiary who is the former owner’s spouse;
• designated beneficiary who is not the former owner’s spouse; or
• non-designated beneficiary.
The distribution rules are summarized in Table 7. The distribution rules also depend on whether
the IRA owner died prior to the required beginning date. The required beginning date is the date
on which distributions from the account must begin. It is April 1 of the year following the year in
which the owner of an IRA reaches the age of 70½. Distributions from inherited IRAs are taxable
income but are not subject to the 59½ rule. Failure to take the required minimum distribution
results in a 50% excise tax on the amount not distributed as required.
Designated spouse beneficiaries who treat inherited IRAs as their own can roll over inherited
IRAs into traditional IRAs or, to the extent that the inherited IRAs are taxable, into qualified
employer plans (such as 401(k), 403(b), or 457 plans). Non-spouse beneficiaries cannot roll over
any amount into or out of inherited IRAs.
In some cases, IRAs have requirements for distributions by beneficiaries that are more stringent
than those summarized in Table 7. For example, an IRA’s plan documents could require that a
designated spouse or designated nonspouse beneficiary distribute all assets in the IRA by the end
of the fifth year of the year following the IRA owner’s death. In such a case, the beneficiary
would not have the option to take distributions over a longer period of time. Unless the IRA plan
documents specify otherwise, it is possible to take distributions faster than required in Table 7.
For example, a beneficiary may elect to distribute all assets in a single year. In such a case, the
entire amount distributed is taxable income for that year.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Table 7. Inherited IRA Distribution Rules
Owner Dies after Required

Owner Dies Before Required Beginning Date
Beginning Date
Spouse is named as Treat as own, does not have to take any
Treat as own, does not have to take
the designated
distribution until the age of 70½, but is subject to
any distribution until the age of 70½,
beneficiary
the 59½ rule, or
but is subject to the 59½ rule, or
Keep in decedent’s name and take distributions
Keep in decedent’s name and take
based on own life expectancy. Distributions do not
distributions based on own life
have to begin until decedent would have turned
expectancy.
70½.
A nonspouse is
Take distributions based on life expectancy for
Take distributions based on the longer
named as the
beneficiary’s age as of birthday in the year following
of
designated
the year of the owner’s death, reduced by one for
beneficiary
each year since owner’s death.
(1) beneficiary’s life expectancy, or
If the nonspouse beneficiary does not take a
(2) owner’s life expectancy using age as
distribution in year of owner’s death, then all IRA
of birthday in the year of death,
assets must be distributed by the end of the fifth
reduced by one for year after the year
year of the year following the IRA owner’s death.
of death.
Beneficiary is not
Must distribute all IRA assets by the end of the fifth
Take a yearly distribution based on the
named
year of the year following the IRA owner’s death.
owner’s age as of birthday in the year of
death, reduced by one for each year
after the year of death.
Source: CRS analysis of IRS Publication 590.
Note: The required beginning date is the date on which distributions from the account must begin. It is April 1
of the year fol owing the year in which the owner of an IRA reaches the age of 70½.
Roth IRAs
Roth IRAs were authorized by the Taxpayer Relief Act of 1997 (P.L. 105-34). The key differences
between traditional and Roth IRAs are that contributions to Roth IRAs are made with after-tax
funds and qualified distributions are not included in taxable income; hence, investment earnings
accrue free of taxes.13
Eligibility and Contribution Limits
In contrast to traditional IRAs, Roth IRAs have income limits for eligibility. Table 8 lists the
adjusted gross incomes at which individuals may make the maximum contribution and the ranges
in which this contribution limit is reduced. For example, a 40-year-old single taxpayer with
income of $90,000 can contribute $5,500 in 2013. A similar taxpayer making $120,000 would be
subject to a reduced contribution limit, whereas a taxpayer with come of $130,000 would be
ineligible to contribute to a Roth IRA.
Individuals aged 50 and older can make additional $1,000 catch-up contributions. The adjusted
gross income limit for eligibility has been adjusted for inflation since 2007; beginning in 2009,

13 Roth IRAs are named for former Senator William Roth (DE).
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

the traditional and Roth IRA contribution limit has also been adjusted for inflation. A worksheet
for computing reduced Roth IRA contribution limits is provided in IRS Publication 590.
Investment Options
Roth IRAs must be designated as such when they are set up. As with traditional IRAs, they can be
set up through many financial institutions. Transactions prohibited within traditional IRAs are
also prohibited within Roth IRAs.
Conversions and Rollovers
Individuals may convert amounts from traditional IRAs, SEP-IRAs, or SIMPLE-IRAs to Roth
IRAs.14 Since 2008, individuals have been able to rollover distributions directly from qualified
retirement plans to Roth IRAs. Amounts that would have been included in income if the
conversion had not been made must be included in income. Conversions can be a trustee-to-
trustee transfer, a same trustee transfer by redesignating the IRA as a Roth IRA, or a rollover
directly to the account holder. Inherited IRAs cannot be converted.
The rules for rollovers that apply to traditional IRAs, including completing a rollover within 60
days, also apply. Additionally, withdrawals from a converted IRA prior to five years from the
beginning of the year of conversion are non-qualified distributions and are subject to a 10%
penalty.
Tax-free withdrawals from one Roth IRA transferred to another Roth IRA are allowed if
completed within 60 days. Rollovers from Roth IRAs to other types of IRAs or to employer-
sponsored retirement plans are not allowed.
Withdrawals
The three kinds of distributions from Roth IRAs are (1) return of regular contributions, (2)
qualified distributions, and (3) non-qualified distributions. Returns of regular contributions and
qualified distributions are not included as part of taxable income.
Return of Regular Contributions
Distributions from Roth IRAs that are a return of regular contributions are not included in gross
income nor are they subject to the 10% penalty on early distributions.

14 Prior to January 1, 2010, only individuals with income under specified thresholds were eligible to make conversions
from traditional to Roth IRAs. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA; P.L. 109-222)
eliminated the income thresholds.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Qualified Distributions
Qualified distributions must satisfy both of the following:
• they are made after the five-year period beginning with the first taxable year for
which a Roth IRA contribution was made,15 and
• they are made on or after the age of 59½; or because of disability; or to a
beneficiary or estate after death; or to purchase, build, or rebuild a first home up
to a $10,000 lifetime limit.
Non-Qualified Distributions
Distributions that are neither returns of regular contributions nor qualified distributions are
considered non-qualified distributions. Although individuals might have several Roth IRA
accounts from which withdrawals can be made, for tax purposes non-qualified distributions are
assumed to be made in the following order:
1. the return of regular contributions,
2. conversion contributions on a first-in-first-out basis, and
3. earnings on contributions.
Non-qualified distributions may have to be included as part of income for tax purposes. A
worksheet is available in Publication 590 to determine the taxable portion of non-qualified
distributions. A 10% penalty applies to non-qualified distributions unless one of the exceptions in
26 U.S.C. Section 72(t) applies. The exceptions are identical to those previously listed for early
withdrawals from traditional IRAs.
Distributions after Roth IRA Owner’s Death
If the owner of a Roth IRA dies, the distribution rules depend on whether the beneficiary is the
spouse or a nonspouse. If the beneficiary is the spouse, then the spouse can choose to treat the
inherited Roth IRA as their own. If the spouse chooses not to treat the inherited Roth IRA as their
own, or if the beneficiary is a nonspouse, then there are two options. The beneficiary can
distribute the entire interest in the Roth IRA (1) by the end of the fifth calendar year after the year
of the owner’s death, or (2) over the beneficiary’s life expectancy. As with an inherited traditional
IRA, a spouse can delay distributions until the decedent would have reached the age of 70½.

15 The five-year period is not necessarily five calendar years. Contributions made from January 1 to April 15 could be
considered made in the previous tax year.
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Table 8. Roth IRA Eligibility and Contribution Limits for 2012 and 2013
2012 Modified
2013 Modified
Adjusted
Adjusted
Gross Income
2012 Contribution
Gross Income
2013 Contribution
Filing Status
(AGI)
Limits
(AGI)
Limits
Single, head of household, Less than
$5,000 ($6,000 if 50
Less than
$5,500 ($6,500 if 50
married filing separately
$110,000
years or older) or AGI, $112,000
years or older) or AGI,
(and did not live with
whichever is smaller.
whichever is smaller.
spouse at any time during
the year)
At least
Reduced contribution
At least
Reduced contribution
$110,000 but
limit
$112,000 but
limit
less than
less than
$125,000
$127,000
$125,000 or
Ineligible to contribute
$127,000 or
Ineligible to contribute
more
more
Married filing separately
Less than
Reduced contribution
Less than
Reduced contribution
and lived with spouse at
$10,000
limit
$10,000
limit
any time during the year
$10,000 or
Ineligible to contribute
$10,000 or
Ineligible to contribute
more
more
Married filing jointly,
Less than
$5,000 each ($6,000
Less than
$5,500 each ($6,500
qualifying widow(er)
$169,000
each if 50 and older) or $178,000
each if 50 and older) or
AGI, whichever is
AGI, whichever is
smaller.
smaller.
At least
Reduced contribution
At least
Reduced contribution
$173,000 but
limit
$178,000 but
limit
less than
less than
$183,000
$188,000
$183,000 or
Ineligible to contribute
$188,000 or
Ineligible to contribute
more
more
Source: CRS analysis of IRS Publication 590 and IRS News Release IR-2012-77.
Distributions from inherited Roth IRAs are generally free of income tax. The beneficiary may be
subject to taxes if the owner of a Roth IRA dies before the end of (1) the five-year period
beginning with the first taxable year for which a contribution was made to a Roth IRA or (2) the
five-year period starting with the year of a conversion from a traditional IRA to a Roth IRA. The
distributions are treated as described in the section of this report on non-qualified Roth IRA
distributions.
Retirement Savings Contribution Credit
The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) authorized a non-
refundable tax credit of up to $1,000 for eligible individuals, or $2,000 if filing a joint return, who
contribute to IRAs or employer-sponsored retirement plans.16 The tax credit is in addition to the
tax deduction for contributions to traditional IRAs or other employer-sponsored pension plans. To
receive the credit, taxpayers must be at least 18 years old, not full-time students, not an

16 See also CRS Report RS21795, The Retirement Savings Tax Credit: A Fact Sheet, by John J. Topoleski.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

exemption on someone else’s tax return, and have adjusted gross income less than certain limits.
The limits are in Table 9. For example, individuals who make a $2,000 IRA contribution in 2013,
have income of $15,000, and list their filing status as single would be able to reduce their 2013
tax liability by up to $1,000. Taxpayers must file form 1040, 1040A, or 1040NR. It is not
available on form 1040EZ, which may limit the use of the credit.
Table 9. Retirement Saving Contribution Credit Income Limits
for 2012 and 2013
Filing Status
2012 Income Limits
2013 Income Limits
Percentage Credit
Single, Married Filing Separately,
$1 to $17,250
$1 to $17,750
50%
Qualifying Widow(er)
$17,251 to $18,750
$17,751 to $19,250
20%
$18,751 to $28,750
$19,251 to $29,500
10%
more than $28,750
more than $29,500
0%
Head of Household
$1 to $25,875
$1 to $26,625
50%
$25,876 to $28,125
$26,626 to $28,875
20%
$28,126 to $43,125
$28,876 to $44,250
10%
more than $43,125
more than $44,250
0%
Married Filing Jointly
$1 to $34,500
$1 to $35,500
50%
$34,501 to $37,500
$35,501 to $38,500
20%
$37,501 to $57,500
$38,501 to $59,000
10%
more than $57,500
more than $59,000
0%
Source: CRS analysis of IRS Publication 590 and IRS News Release IR-2012-77.
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Appendix. Qualified Distributions Related to
Natural Disasters
As part of the response to the 2005 hurricanes that affected the communities on and near the Gulf
of Mexico, Congress approved provisions that exempted individuals affected by the storms from
the 10% early withdrawal penalty for withdrawals from IRA. In 2008, Congress approved similar
provisions in response to the storms and flooding in certain Midwestern states.
Qualified Distributions Related to Hurricanes Katrina, Rita, and
Wilma
In response to Hurricanes Katrina, Rita, and Wilma, Congress approved the Gulf Opportunity
Zone Act of 2005 (P.L. 109-135). The act amended the Internal Revenue Code to allow residents
in areas affected by these storms who suffered economic losses to take penalty-free distributions
up to $100,000 from their retirement plans, including traditional and Roth IRAs. The distributions
must have been received after August 24, 2005 (Katrina), September 22, 2005 (Rita), or October
22, 2005 (Wilma), and before January 1, 2007. The distributions are taxable income and can be
reported as income either in the year received or over three years (e.g., a $30,000 distribution
made in May 2006, can be reported as $10,000 of income in 2006, 2007, and 2008). Alternatively,
part or all of the distribution may be repaid to the retirement plan within three years of receiving
the distribution without being considered taxable income.
Qualified Distributions Related to the Midwestern Disaster Relief
Area
In response to severe storms, tornados, and flooding that occurred in certain Midwestern states,
the Heartland Disaster Tax Relief Act of 2008 allows residents of specified Midwest areas to take
penalty-free distributions up to $100,000 from their retirement plans, including traditional and
Roth IRAs. This act was passed as Division C of P.L. 110-343, the Emergency Economic
Stabilization Act of 2008. The bill amends 26 U.S.C. 1400Q, which was enacted as part of the
Gulf Opportunity Zone Act of 2005 (P.L. 109-135). The distributions must be received after the
date in which the President declared an area to be a major disaster area and before January 1,
2010.17 Apart from for the dates and the areas affected, the provisions are identical to the
provisions for individuals who were affected by Hurricanes Katrina, Rita, and Wilma.
Hurricane Sandy Relief
As of January 29, 2013, no legislation has been introduced that would (1) exempt individuals in
areas affected by Hurricane Sandy from the 10% penalty for early withdrawals from IRAs or
defined contribution retirement plans or (2) ease requirements for loans from defined contribution
pensions for individuals affected by Hurricane Sandy.

17 The disaster areas are limited to Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska,
and Wisconsin.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

The IRS has eased requirements for hardship distributions in areas affected by Hurricane Sandy.
Among the relief offered by the IRS in Announcement 2012-44, “Plan administrators may rely
upon representations from the employee or former employee as to the need for and amount of a
hardship distribution” rather than require documentation from the employee of the need.18 The
relief offered by the IRS does not include an exemption from the 10% penalty for distributions
before the age of 59½. Exemptions from the 10% penalty require congressional authorization.
Also in Announcement 2012-44, the IRS suspended the requirement that requires an individual to
suspend contributions to a 401(K) and 403(b) plans for the six months following a hardship
distribution.


Author Contact Information

John J. Topoleski

Analyst in Income Security
jtopoleski@crs.loc.gov, 7-2290


18 See 26 CFR 1.401(k)-1.
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