Roth IRAs and traditional IRAs have some significant differences. Roth IRA distributions are tax-free as long as you begin withdrawing funds after you are 59 1/2 and have had the account for at least five years. However, unlike traditional IRAs, contributions are not tax-deductible when you make them.
Traditional IRA contributions are deductible if you meet certain criteria, but distributions are taxable at the rate in effect for ordinary income and must begin by April 1sfollowing the year you turn 70 1/2. Because of the significant economic turmoil in 2009 Congress waived the Required Minimum Distributions (RMDs) for 2009.
With a Roth IRA, there is no requirement to take distributions at any age. This is a major advantage over traditional IRAs because the longer you can keep the funds in your retirement account and compounding tax-free, the greater the value of your portfolio becomes. You may also have more tax-free money to pass to your heirs.
You can also contribute to a Roth IRA after age 70 1/2, if you have earned income. Traditional IRAs do not allow contributions in the year you become 70 1/2 or later.
Remember you can make IRA contributions until April 15, 2010. The 2009 annual contribution limit is $5,000 for people under age 50 and $6,000 for those age 50 and over. The same limits are in effect for 2010.