While in the Roth IRA, earnings grow tax-deferred.
If withdrawn as part of a qualified distribution, the earnings are tax free. For more
information on qualified distributions, see “What is a Roth IRA qualified distribution?”
Saver’s Tax Credit:
You may be eligible to take a saver’s tax credit for your Roth IRA contribution. The
maximum annual tax credit is $1,000 and, if you are eligible, the credit will reduce the
federal income tax you owe dollar for dollar. You may be eligible for the tax credit if
you are age 18 or older, not a dependent of
another taxpayer, and not a full-time student. Eligibility for the saver’s tax credit
is also based on your tax filing status and your adjusted gross income. The applicable
income limits are viewable on the News & Resources page.
Note: Roth IRA contributions are not tax-deductible.
Perhaps the most important difference between Traditional IRAs and Roth IRAs is the tax
treatment of the earnings that accrue within each type of IRA. Earnings that accrue
within a Traditional IRA are “tax-deferred” meaning they are not taxed until
they are distributed from the Traditional IRA. On the other hand, earnings that accrue
within a Roth IRA are typically tax free, meaning they are not taxed at the time of accrual
or when they are subsequently distributed from the Roth IRA. In addition, Traditional
IRA contributions are often tax deductible while Roth IRA contributions are always made with