	Introduction

Individual Retirement Accounts (IRAs) are tax-advantaged accounts that individuals (or married couples) can establish to accumulate funds for retirement. This report describes the two kinds of IRAs that individual workers can establish: traditional IRAs and Roth IRAs. It also describes a tax credit for retirement savings contributions. Early distributions may be subject to an additional 10% penalty. The early withdrawal penalty does not apply to distributions before the age of 59½ if they
occur if the individual is a beneficiary of a deceased IRA owner; occur if the individual is disabled; are in substantially equal payments over the account holder's life expectancy; are received after separation from employment after the age of 55; are for unreimbursed medical expenses in excess of 7.5% of AGI; are for medical insurance premiums in the case of unemployment; are used for higher education expenses; are used to build, buy, or rebuild a first home up to a $10,000 withdrawal limit; occur if the individual is a reservist called to active duty after September 11, 2001; were distributions to residents in areas affected by Hurricanes Katrina, Rita, and Wilma from around the storms' landfalls to January 1, 2007; were distributions to residents in areas affected by the Midwestern floods in 2008 from after the applicable disaster date and before January 1, 2010; or were distributions in areas affected by Hurricanes Harvey, Irma, and Maria from around the storms' landfalls to January 1, 2019. The key differences between traditional and Roth IRAs are that contributions to Roth IRAs are made with after-tax funds and qualified distributions are not included in taxable income; investment earnings accrue free of taxes. Eligibility and Contribution Limits

In contrast to traditional IRAs, Roth IRAs have income limits for eligibility. The amount of the conversion must be included in taxable income. A provision in P.L. 115-97 (originally called the Tax Cuts and Jobs Act) repealed a special rule that allowed IRA contributions to one type of IRA to be recharacterized as a contribution to the other type of IRA. Rollovers from Roth IRAs to other types of IRAs or to employer-sponsored retirement plans are not allowed. Distributions from inherited Roth IRAs are generally free of income tax. 107 - 16 ) authorized a nonrefundable tax credit of up to $1,000 for eligible individuals, or $2,000 if filing a joint return, who contribute to IRAs or employer-sponsored retirement plans. The Retirement Savings Contribution Credit, also referred to as the Saver's Credit, is in addition to the tax deduction for contributions to traditional IRAs or other employer-sponsored pension plans. The Saver's Credit is not available on form 1040EZ, which may limit the use of the credit. Table 8 provides data on IRA ownership and account balances among households that owned IRAs in 2016. Qualified Distributions Related to Natural Disasters

As part of the response to the 2005 hurricanes that affected the communities on and near the Gulf of Mexico, Congress approved provisions that exempted individuals affected by the storms from the 10% early withdrawal penalty for withdrawals from IRA.
In response to concerns over the adequacy of retirement savings, Congress has created incentives to encourage individuals to save more 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 individuals. Although the accounts have many features in common, they differ in some important aspects. Both traditional and Roth IRAs offer tax incentives to encourage individuals to save for retirement. 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 distributions from Roth IRAs are not included in taxable income. Some distributions may be subject to an additional 10% tax penalty, unless the distribution is for a reason specified in the Internal Revenue Code (for example, distributions from IRAs after the individual is aged 59½ or older are not subject to the early withdrawal penalty).
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. A provision in P.L. 115-97 (originally called the Tax Cuts and Jobs Act) repealed a special rule that allowed IRA contributions to one type of IRA to be recharacterized as contributions to the other type of IRA.
The Retirement Savings Contribution Credit (also known as the Saver's Credit) is a nonrefundable tax credit of up to $1,000. It was authorized in 2001 to encourage retirement savings among individuals with income under specified limits.
This report explains the eligibility requirements, contribution limits, tax deductibility of contributions, and rules for withdrawing funds from the accounts, and provides data on the account holdings. It also describes the Saver's Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005, the Midwestern storms in 2008, and the hurricanes in 2012 and 2017 to exempt distributions to those affected by the disasters from the 10% early withdrawal penalty.