RETIREMENT & OTHER CONCEPTS · 5 MIN READ
Traditional and Roth IRAs: Contributions, Conversions, QCDs
The Traditional IRA and the Roth IRA are mirror images in tax treatment. Traditional IRA contributions may be tax-deductible (the deduction phases out at higher income for active participants in employer plans), earnings grow tax-deferred, and distributions of deductible contributions and earnings are taxed as ordinary income. Roth IRA contributions are never deductible, but qualified distributions — those made after a 5-year holding period and on account of age 59 1/2, death, disability, or a first-home purchase up to $10,000 — come out entirely tax-free, earnings included. Roth contribution eligibility phases out at higher income, but since 2010 anyone can convert a Traditional IRA to a Roth regardless of income, which is the engine behind the backdoor Roth strategy. Watch the pro-rata rule on backdoor conversions: all of a taxpayer's IRAs are aggregated, so pre-tax balances make part of every conversion taxable. Converted amounts also carry their own 5-year clock for penalty purposes, separate from the contribution 5-year clock. Two income-linked features round out the IRA story. The Saver's Credit is a nonrefundable credit of 50%, 20%, or 10% of the first $2,000 contributed ($4,000 on a joint return), based on AGI — a credit that reduces tax dollar-for-dollar, unlike a deduction; SECURE 2.0 will convert it into a government-deposited Saver's Match starting in 2027. At the other end of life, a Qualified Charitable Distribution (QCD) lets an IRA owner who is at least 70 1/2 send up to $108,000 (2025, indexed) directly from the IRA trustee to a public charity, excluded from gross income and counting toward any RMD due. The QCD age stayed at 70 1/2 even though the RMD age moved to 73 — a mismatch the exam exploits relentlessly.
Key rules
Traditional IRA: deductible in, taxable out. Roth IRA: after-tax in, tax-free out.
Traditional contributions may qualify for an above-the-line deduction with tax-deferred growth taxed at distribution; Roth qualified distributions of both contributions and earnings are excluded from income.
Why the exam cares: Nearly every IRA question reduces to this symmetry; distractors flip one side of it.
A Roth distribution is qualified only after 5 years AND a triggering event.
The events are age 59 1/2, death, disability, or first-home purchase up to $10,000. Both conditions must be satisfied — reaching 59 1/2 alone is not enough if the account is younger than 5 years.
Why the exam cares: The exam pairs an old-enough owner with a too-young account to catch candidates who forget the two-part test.
Roth conversions have no income cap; annual Roth contributions do.
Since 2010 any taxpayer may convert Traditional IRA money to Roth, paying ordinary income tax on the pre-tax amount converted. Direct contributions still phase out at higher AGI.
Why the exam cares: This asymmetry is the legal basis of the backdoor Roth and shows up as a true-false style item.
Backdoor Roth conversions are taxed pro-rata across ALL of the owner's IRAs.
You cannot isolate the after-tax contribution; pre-tax balances in any Traditional, SEP, or SIMPLE IRA make a proportionate share of the conversion taxable.
Why the exam cares: Examiners test whether candidates know the aggregation rule defeats the 'convert only the new money' assumption.
QCDs require age 70 1/2 and a direct trustee-to-charity transfer.
Up to $108,000 (2025) per taxpayer per year is excluded from income and counts toward RMDs; a check made payable to the owner first does not qualify.
Why the exam cares: The QCD age never moved when the RMD age rose to 73, and the exam tests that exact mismatch.
Numbers to memorize
- 5 years — Roth holding period required (with a trigger event) for a qualified tax-free distribution
- 59 1/2 — age trigger for qualified Roth distributions and the general early-distribution penalty line
- $10,000 — lifetime first-home purchase amount usable as a Roth qualified-distribution trigger
- 50% / 20% / 10% of first $2,000 ($4,000 joint) — Saver's Credit tiers by AGI; becomes a Saver's Match in 2027
- 70 1/2 — minimum age for a Qualified Charitable Distribution (unchanged by SECURE and SECURE 2.0)
- $108,000 (2025) — annual QCD exclusion limit per taxpayer
Common traps
- Confusing the QCD age (70 1/2) with the RMD age (73) — SECURE raised the RMD age but left the QCD age alone.
- Treating age 59 1/2 alone as making a Roth distribution qualified — the 5-year holding period must also be met.
- Assuming a backdoor Roth conversion of after-tax money is tax-free — the pro-rata rule aggregates all IRAs, so pre-tax balances create taxable income.
- Calling the Saver's Credit a deduction — it is a nonrefundable credit that offsets tax dollar-for-dollar but cannot exceed tax liability.
For any Roth question, check two clocks and one trigger: the account's 5-year clock, any conversion's own 5-year clock, and whether a qualifying event (59 1/2, death, disability, first home) has occurred.
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