Tax-Deferred Earnings
While in the Roth IRA, earnings grow tax-deferred.

Tax-Free Distributions
If withdrawn as part of a qualified distribution, the earnings are tax free.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 after-tax dollars.