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Retirement Basics
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retirement
Traditional IRA vs. Roth IRA

Workplace-sponsored retirement accounts aren't the only way to save. You can also stash money in Individual Retirement Accounts, or IRAs.

IRAs boast rich tax benefits that give savings an extra edge to compound. The tax benefits depend on the IRA you select -- a traditional or Roth IRA.

Annual contributions to both accounts are the same -- up to $5,000 per person, or $6,000 for individuals who are 50 or older. For the 2010 tax year, limits remain the same.

That said, some experts say the Roth IRA may be the better choice for most individuals because they offer potentially greater tax breaks and more flexibility in terms of funding and withdrawing funds.

"I do like the Roth over the traditional IRA for a number of reasons," says Rick Meigs, president of 401khelpcenter.com. "I like the concept of having your money tax-free forever. In a Roth IRA, you don't have to take mandatory withdrawals at 70½ and you can keep contributing to it."

Roth IRA contributions are funded with after-tax earnings. However, earnings grow tax-free and can be withdrawn tax-free, too, as long as the account is open for five years and you're age 59½ or older.

Meigs notes that Roth earnings never have to be withdrawn, and you can contribute to a Roth for as long as you like. That's a great help for those who plan to work well past traditional retirement years. On the other hand, withdraw earnings before 59½ and you'll generally pay a 10 percent penalty.

However, you may earn too much to fund a Roth, because they're only available to individuals whose modified adjusted gross income doesn't exceed a maximum of $120,000. For married couples filing a joint tax return, eligibility requirements top out at $176,000.

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