What is an IRA?

• An individual retirement account (IRA) is a way for individuals to save money now to be used to support themselves upon retirement. A portion of the individual's earned income is invested, usually in stocks, bonds, or mutual funds, but sometimes in other types of holdings such as real estate or certificates of deposit. The money and its earnings remain in the fund until the individual withdraws it, usually after a certain age.
  
  

What is a Traditional IRA?

• The main difference between a Roth IRA and a traditional IRA is the way in which the funds are taxed. With a traditional IRA, the money is not taxed at the time it is put into the IRA but at the time it is withdrawn, which gives you the advantage of a tax savings now.
  
  

What is a Roth IRA?

• The Roth IRA has been around since 1997. A Roth IRA is taxed at the time the money is deposited in the IRA. When it is withdrawn after you retire contributions are tax free, and earnings are tax-free provided it has been more than five years since the IRA was established and you are older than 59 1/2 years old.
  
  

What are the aAdvantages of the Roth IRA?

• The main purpose of the Roth IRA is to provide the individual with earnings that are not taxed when they are withdrawn after retirement. Another benefit over the traditional IRA is you will not be required to pay penalties if you choose to take your money out early. Also, with a traditional IRA you must begin withdrawing funds at age 70 1/2, whether you need them or not. With a Roth IRA, if you have other adequate means of support, you can leave the money in the fund where it can continue to grow.
  
  

Who Can Set up a Roth IRA?

• In order to contribute to a Roth IRA, you or your spouse must earn at least as much as the amount being deposited in the account. If you have a traditional IRA, you can convert it to a Roth IRA. However you'll need to pay taxes on the converted funds.
  
  

Considerations

• While the advantages listed above apply to most people, there are a few limitations. There is a limit to the amount contributors can put into the Roth IRA each year. That maximum yearly contribution is currently set at $5000 per person, $6000 for those aged 50 and up. Also, you can contribute the maximum amount only if you earn less than the income limit, above which the permitted contribution amount is reduced and eventually eliminated. This income limit changes, so check at the link in the Resources section below for the most recent information.