Which IRA is right for me? Traditional vs. Roth vs. SEP IRAs

While Traditional, Roth, and SEP IRAs all allow you to save for retirement, it’s important to know their differences.   

The IRS has income and age requirements that determine what type of IRA you can contribute to, and if you are eligible to deduct your contributions.  

Here are some key differences: 

Features

Traditional IRA 

Roth IRA 

SEP IRA 

Who can contribute?

 

Generally, you are eligible to contribute if you (or your spouse, if filing taxes jointly) have qualifying earned income

Generally, you are eligible to contribute if you (or your spouse, if filing taxes jointly) have qualifying earned income and you meet the IRS income limits (2023 limits).

Generally, you are eligible to contribute if you are a self-employed individual or small business owner. M1 currently only supports SEP IRAs for self-employed individuals. 

Who are they built for?

Those who want to contribute pre-tax or are ineligible to contribute to a Roth IRA. 

Those who wish to contribute after-tax and are eligible to contribute to a Roth.

M1 currently supports SEP IRAs for self-employed individuals only.

Are my contributions deductible? (before tax) Traditional IRA contributions are generally tax deductible if you meet the IRS deduction limits No, Roth contributions are not deductible. SEP IRA contributions are generally tax deductible, according to your plan type.
Contribution limit

The 2024 combined contribution limit of your Traditional and Roth IRAs is the lesser of:

  • $7,000 ($8,000 if you’re age 50 or older), or
  • Your earned income for the year

The 2023 contribution limits are $6,500 and $7,500, respectively. 

You can contribute the lesser of:

  • 25% of your compensation
  • $69,000 for 2024 / $66,000 for 2023.
Contribution deadline You can contribute until your tax filing deadline (not including extensions).  You can contribute until your tax filing deadline (including extensions).
Taxation of withdrawals Generally, pre-tax contributions and earnings within this account are taxed in the year that the distribution occurs.  Your contributions can be withdrawn tax-free at any time; earnings can be withdrawn federally tax-free and penalty-free if it has been more than 5 years since your initial contribution and you are over age 59½, or if you qualify for an exception. Generally, pre-tax contributions and earnings within this account are taxed in the year that the distribution occurs.

Early withdrawal penalty

A 10% early withdrawal penalty may be assessed if you withdraw prior to age 59½, unless you qualify for an exemption
Required Minimum Distribution (RMD)

RMDs are generally required to begin April 1 following the year in which you turn age 72 (73 if you reach age 72 after Dec. 31, 2022)* and by December 31 of later years.

RMDs are not required to be taken at any age from a Roth IRA if you’re the original account owner. RMDs are generally required to begin April 1 following the year in which you turn age 72 (73 if you reach age 72 after Dec. 31, 2022)* and by December 31 of later years.

 

*Your first RMD is determined based off the year you turn 72

Turned 72 in 2022 Turned 72 in 2023
First RMD is due by April 1, 2023, based on your account balance December 31, 2021 First RMD is April 1, 2025, for 2024
Second RMD is due by December 31, 2023, based on your account balance on December 31, 2022  

 

M1 is unable to advise if a particular IRA type is right for you. 

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

 

20240118-3289299-10573837

M1 disclosures here.

Was this article helpful?
/
0 out of 0 found this helpful