CRS Report – Traditional and Roth Individual Retirement Accounts (IRAs): A Primer Updated February 15, 2022: “In response to concerns over the adequacy of retirement savings, Congress has created incentives to encourage individuals to save for retirement through a variety of retirement plans. Some retirement plans are employer-sponsored, such as 401(k) plans, and others are established by individual employees, such as Individual Retirement Accounts (IRAs). This report describes the primary features of two common retirement savings accounts that are available to workers for independently saving a portion of their wages or to individuals rolling over savings from employer-sponsored plans—traditional IRAs and Roth IRAs. Individuals may roll over eligible distributions from other retirement accounts (such as an account balance from a 401(k) plan upon leaving an employer) into IRAs. Rollovers preserve retirement savings by allowing investment earnings on the funds in the retirement accounts to accrue on a tax-deferred basis, in the case of traditional IRAs, or a tax-free basis, in the case of Roth IRAs. Most inflows to Roth IRAs are from contributions; in contrast, most inflows to traditional IRAs are from rollovers.Both traditional and Roth IRAs offer tax incentives to encourage individuals to save for retirement. Although the accounts have many features in common, they differ in some important aspects, such as deductibility, eligibility to contribute, and tax treatment. Contributions to traditional IRAs may be tax deductible for taxpayers who (1) are not covered by a retirement plan at their place of employment or (2) have income below specified limits. Contributions to Roth IRAs are not tax deductible and eligibility is limited to those with incomes under specified limits.The tax treatment of distributions from traditional and Roth IRAs differs. Distributions from traditional IRAs are generally included in taxable income,whereas qualified distributions from Roth IRAs are not included in taxable income. Some distributions from both may be subject to an additional 10% tax penalty, unless the distribution (1) is for a reason specified in the Internal Revenue Code (e.g., distributions from IRAs after the individual is aged 59½ or older are not subject to the early withdrawal penalty)or(2)meets a temporary exception in response to certain disasters.This report explains IRAs’ eligibility requirements, contribution limits, tax deductibility of contributions, and withdrawal rules, and it provides data on the accounts’ holdings. It also describes the Retirement Savings Contribution Credit (also known as the Saver’s Credit), which isa nonrefundable tax credit of up to $1,000 ($2,000 if married filing jointly)available to individuals with income under specified limits who make IRA (or other retirement plan)contributions. Lastly, it explains provisions enacted after certain federally declared disasters, starting with the Gulf of Mexico hurricanes in 2005, thatexempt distributions to qualified individuals from the 10% early withdrawal penalty…”