When it comes to IRAs, you have a choice to make. Most often, that choice means deciding which of the two most basic IRAs best meets your needs: the traditional IRA or the Roth IRA.

Traditional IRA

You may be able to deduct your contribution from your taxable income, thus reducing current federal income taxes.
While your money grows, federal income taxes are deferred.
You may add funds to your traditional IRA any time prior to age 70½, as long as you (or your spouse, if you file a joint tax return) earned enough to cover the year’s contributions.
You may have a variety of investments within your IRA such as stocks, bonds, mutual funds, annuities or certificates of deposit (CDs).
Contributions must generally be made by the due date for filing your federal income tax return not including extensions (typically April 15) to count as a contribution (and if you are eligible, a deduction) for the previous tax year. In 2009 and 2010, the contribution limit for those under age 50 is $5,000. For those ages 50 and over, the limit is $6,000.

Roth IRA

Contributions to a Roth IRA are made with after-tax income, so you can withdraw your contributions at any time without penalty or federal income tax.
Qualified withdrawals of earnings are federal income tax-free and penalty free if held for 5 years and withdrawn after age 59½.
You may continue to contribute to a Roth IRA as long as your adjusted gross income is below certain amounts.
You may have a variety of investments within your IRA such as stocks, bonds, mutual funds, annuities or CDs.
In 2009 and 2010, the contribution limit for those under age 50 is $5,000. For those ages 50 and over, the limit is $6,000.

Traditional vs. Roth IRAs
	Traditional IRA	Roth IRA
Who May Contribute	All workers under age 70½ by the end of the calendar year. Spousal IRA — spouses under age 70½ by the end of the calendar year if tax filing status is married, filing jointly.	No age limit; however, if married and filing jointly or qualified widow(er), contributions are phased out for modified adjusted gross income (MAGI) from $167,000 to $177,000 and if filing single, from $105,000 to $120,000.
2009/2010 Contribution Limits	Individual: $5,000 Married filing jointly: $10,000 (up to $5,000 each)	Individual: $5,000 Married filing jointly: $10,000 (up to $5,000 each)
2009/2010 Catch-up Contribution	If you are age 50 or older, you may make an additional contribution of $1,000.	If you are age 50 or older, you may make an additional contribution of $1,000.
Deadlines	Generally April 15 to contribute for the previous tax year.	Generally April 15 to contribute for the previous tax year.
Federal Income Tax Deductible	May be able to deduct your contribution, subject to modified adjusted gross income (MAGI) limits if you are covered by an employer plan.	No income tax deduction.
Tax-Advantaged Growth	No taxes on distributions until you withdraw them.	Earnings grow potentially free of federal income tax and may be withdrawn free of federal income tax after age 59½ if you have held the account for at least 5 years.
Required Distributions	Distributions must begin by April 1 of the year after turning age 70½.	No mandatory age for taking distributions during account owner’s lifetime.
401(k) Rollovers	Once you are eligible to take a distribution from your 401(k), you may roll it directly into a traditional IRA.	Eligible employees participating in traditional 401(k)s or other qualified plans, 403(b) plans, and governmental 457(b) plans can roll their distributions over into a Roth IRA. This rule applies to distributions received after December 31, 2007, and only applies to direct (trustee to trustee) rollovers — 60 day indirect rollovers are not allowed.
Withdrawals	After age 59½, withdrawals are not subject to federal income tax penalties. Withdrawals may be subject to federal and state income taxes. Withdrawals prior to age 59½ may be subject to federal and state income taxes, plus a 10 percent federal income tax penalty may apply.	Contributions may be withdrawn at any time without penalty. Early withdrawals may be subject to federal and state income taxes plus a 10 percent federal income tax penalty.
Qualified Early Withdrawals	You may begin taking withdrawals without any penalties when you reach age 59½. In addition, penalty-free withdrawals are allowed if: You are a first-time homebuyer ($10,000 lifetime limit). You are using the withdrawal to pay for certain higher education expenses. Certain conditions are met for unemployment or qualifying medical expenses. The distribution was a result of your disability.	Your principal and earnings may be withdrawn completely tax-free if the Roth IRA has been open for 5 or more years and at least one of the following conditions are met: You are age 59½ or older. You are a first-time homebuyer ($10,000 lifetime limit). You are disabled. Withdrawals are made by your beneficiary after you die.
This IRA May Be Right For You If	You do not qualify for a Roth IRA because of your income level. You expect to be in a lower income tax bracket in retirement.	You anticipate remaining in your current tax bracket after retirement. You expect that when you retire, you will be in a higher tax bracket.

Next: Opening An IRA

Updated Thursday, July 01, 2010