An Individual Retirement Account (IRA) is a tax-advantaged account that can help you potentially build wealth for retirement more quickly when compared to a taxable account. There are two common types of IRAs — traditional and Roth.
If you’re looking for an opportunity to save for retirement in a tax-advantaged way beyond a 401(k) plan or other tax-advantaged account, you may benefit from a traditional or Roth IRA.
With a traditional IRA, contributions may be tax-deductible and the assets have the potential to grow tax-deferred. 1 However, the assets may be subject to ordinary income tax when distributed.
With a Roth IRA, contributions are made with after-tax dollars and are not tax-deductible. 2 Distributions from Roth IRAs are free of federal taxes and may be state tax-free as well. 3
Ultimately, your choice depends on things such as your age, current income, distribution goals and tax objectives. A Merrill Lynch Wealth Management Advisor can walk you through these considerations to help you decide which type may be right for you.
For more information about tax-advantaged ways to save for retirement, including defined contribution plans and IRAs, download the Saving for Retirement fact sheet. This fact sheet also provides information about other things you may want to consider, such as Health Savings Accounts and IRA catch-up contributions.
Do you want to take advantage of the benefits of tax-advantaged saving?Have you maxed out your contributions to a 401(k) and want to save more for retirement?Compared to now, do you think you’ll be in a higher or lower income tax bracket when you retire?Investors can withdraw funds, called taking a distribution, from their IRA at any time. Distributions from an IRA are considered taxable income. If an investor takes a distribution before age 59 ½ there is a 10% additional tax that is also assessed. This additional federal tax can be avoided if the withdrawal is related to specific hardships, such as a disability or use of funds for a specially-qualified expense. Investors should consult their legal and/or tax advisors before making such financial decisions.
IRA contribution limits are set by the IRS and change from time to time. In 2024, the total contributions an investor can make to both traditional and Roth IRAs is $7,000. For investors aged 50 and older, this maximum is increased to $8,000. To be eligible to contribute to a Roth IRA, your Modified Adjusted Gross Income (MAGI) must be below specified limits. The tax deductibility of IRA contributions is dependent upon the type of IRA, your tax-return filing status, your MAGI and whether you or your spouse are eligible to participate in employer-sponsored retirement plans. Investors should consult their legal and/or tax advisors before making such financial decisions.
In general, you cannot borrow money from an IRA. If an investor wants to access funds in an IRA, a withdrawal may be possible without incurring a 10% additional federal tax in certain instances, including:
Assets in an IRA are considered tax-advantaged. Funds in an IRA are not subject to taxes while they are held or invested in the account. This means that any interest, dividends or capital appreciation is also not taxed while the funds are held in the account. Distributions, or withdrawals, from traditional IRAs are treated as ordinary income and taxed accordingly when withdrawn after age 59½. For withdrawals before this age, a 10% additional federal tax is assessed. Investments in a Roth IRA are made with after-tax dollars and are not tax deductible. Federal (and possibly state) income taxes are not due upon distribution of earnings from the account if five years have passed since the first day of the year in which you made your first Roth IRA contribution.
Yes. If you have assets in a 401(k) with an employer that you no longer work for, you can roll over these assets. You can also leave the assets in the plan, withdraw the assets as a lump sum distribution, move the assets to the retirement plan of your new employer or convert all or a portion of the assets into a Roth IRA. Your choice depends on your financial situation, goals and priorities. A discussion with a Merrill advisor can help you evaluate these choices before you make a decision on what course to take.
Traditional or Roth IRA Fact SheetSaving for Retirement Fact SheetMaking the Most of Your Retirement Assets brochureMaking the Most of Your Retirement Assets fact sheet 
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You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs, and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.
1 Your contributions may be tax-deductible, depending on your tax-return filing status, your modified adjusted gross income and whether you or your spouse are eligible to participate in employer-sponsored retirement plans.
2 To be eligible to contribute to a Roth IRA, your Modified Adjusted Gross Income must be below specified limits.
3 Generally, for a distribution from a Roth IRA to be federal (and possibly state) income tax-free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year period has been satisfied (this period begins January 1 of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older, (ii) are disabled, or (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000). In situations where the original account owner is deceased, distributions to the beneficiary are also considered a qualified distribution. If you receive a non-qualified distribution from your Roth IRA, the earnings portion of such distribution generally will be subject to ordinary income tax, plus a 10% early withdrawal additional tax if received before age 59½ unless an exception applies. A 10% early withdrawal additional tax may also be owed on converted Roth IRA principal withdrawn before the end of the five-year period. Although RMDs are not required for the original account owner, RMDs would apply to the inherited IRA account.
This material does not take into account a client’s particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill Lynch financial advisor. Additional information is available in our Traditional IRA or Roth IRA Fact Sheet and Client Relationship Summary.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed, or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
