Traditional IRA Contributions

• Only people under 70 1/2 years old may contribute to their traditional IRA. The amount that they can contribute depend on their earned income level and may change with the tax year. Contributions up to a certain limit are tax-deductible and reduce the account holder's net income. Contributions over that limit are after-tax, considered non-deductible and do not reduce net income. It may be useful to keep the deductible and non-deductible contributions in separate accounts.
  
  

Traditional IRA Distributions

• Distributions from a traditional IRA before the account holder is 59 1/2 years old are subject to income tax and a 10 percent penalty, but penalty-free distributions are allowed under certain conditions. Minimum distributions are required starting when the account holder is age 70 1/2 years. If the distribution is from a deductible account, the total distribution is treated as income. If the distribution is from a non-deductible account, only the earnings are treated as income. If the account holder dies and his spouse inherits the traditional IRA account, the account can be treated as the spouse's account. Non-spousal heirs of the account must begin minimum distributions right away, and those distributions are treated as taxable income.
  
  

Roth IRA Contributions

• Contributions to a Roth IRA are after-tax and may be made when the account holder is any age. She must have employment compensation, and income restrictions affect allowable contribution amounts. Traditional IRAs may be converted to Roth IRAs. In that case, the distribution from the traditional IRA is treated as a distribution for tax purposes. Income restrictions apply, but no penalty or age restrictions apply to conversions.
  
  

Roth IRA Distributions

• No required minimum distributions from a Roth IRA apply during the original account owner's lifetime. A distribution from a Roth IRA is tax-free and penalty-free only if the account is more than 5 years old and the owner is either 59 1/2 years old, has a disability or makes a qualified first-time home purchase. A Roth IRA inherited by a spouse is treated as the spouse's account. Non-spousal heirs of a Roth IRA, however, must begin minimum distributions right away, but those distributions are non-taxable.