One of the key differences between a traditional IRA and a Roth IRA is that a Roth IRA contribution does not provide a tax deduction on page one of Form 1040. So, if your goal is to save tax dollars this year, a Roth IRA may not be the best option. The key advantage to the Roth is that both the contributions and the earnings can be withdrawn tax-free once it qualifies for distribution.

Traditional IRA contributions and earnings are fully taxable at ordinary income tax rates when withdrawn at 59 1/2 years of age. Also, you are required to take minimum distributions from your traditional IRA once you have reached age 70 1/2. However, the Roth IRA does not have any required minimum distributions at the age of 70 1/2. The following list provides other facts about IRAs to help you determine what’s right for you:

To be eligible for Roth IRA contributions, you must have an adjusted gross income of not more than $95,000 for a single taxpayer or $150,000 for joint filers.

A Roth distribution is considered qualified if it is made after a five-year holding period, which begins on the first day of the first year when contributions were made and one of the following applies:

You are at least 591/2,
The distribution is due to death or disability, or
The distribution is made to a qualified first-time homebuyer.

Contributions can be made after you reach age 70 1/2 (you cannot make contributions to a traditional IRA once you are 70 1/2 years of age).

The maximum annual contribution for all IRAs is the same ($4,000 for 2006 and 2007 (plus an additional $1,000 catch-up contribution if you are 50 years of age or older), and $5,000 for 2008.

You have the option of selecting both a traditional and Roth IRA, but the maximum combined contribution is still limited to $4,000.

Annual contributions to both the Roth and traditional IRAs must be made by the due date (not including extensions) of the individual’s tax return.

Both a traditional and Roth IRA require an earned income of $4,000, unless you are a nonworking spouse.

For those who are just starting their career or have 15 to 20 years left before retirement, the tax-deferred earnings potential of a Roth IRA makes it an option worth evaluating. As with all IRAs, make sure you discuss and understand all the contribution limitations, distribution regulations, and tax law retirement opportunities with your accountant or financial advisor before taking any action. Find out how each IRA will affect beneficiaries for your estate planning. And make sure your financial advisor is keeping you up-to-date on the most current IRA tax law changes.

A Roth IRA may be an excellent option, but as with any financial investment, you want to be sure it is working for you in protecting your wealth and achieving your financial goals.

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice, if any, contained in this communication (including, unless otherwise provided, any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoidingtax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matter(s) addressed herein.

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