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This means that when you file your annual tax return, you will not pay income tax on the amount you contributed to your IRA. Instead, that money will be invested within the IRA, grow tax-deferred and not be taxed until you begin taking distributions in retirement. There are rules, however, for who is eligible to take the tax deduction. Your deduction will be allowed in full if neither you nor your spouse are covered by employer sponsored retirement plans (such as a 401(k), 403b, 457, SIMPLE, etc.). If you are covered by an employer plan, then your IRA contribution will only be fully tax-deductible if your adjusted gross income (AGI) is less than $96,000, and will be partially deductible if your AGI is between $96,000 and $116,000. If you are not covered by an employer sponsored plan but your spouse is, then your IRA contribution will only be fully tax deductible if your AGI is less than $181,000 in 2014. However, your contribution will be partially deductible if your AGI is between $181,000 and $191,000. It is important to understand that the money you put into an IRA is meant to be used for retirement. If you take the money out before age 59 � you will likely pay a 10 percent penalty on the withdrawal. There are some circumstances where the penalty may be waived, but your best bet is to not contribute money that you will need to withdraw early. There are also rules that dictate when you have to start removing money from your IRA. Your must begin taking distributions from your IRA at age 70 �. These distributions are referred to as Required Minimum Distributions. The amount you take out each year is calculated using the balance of your IRA on Dec. 31 of the previous year and dividing it by an age-based divisor that can be found on the IRS website. ROTH IRAROTH IRAs came into existence in the late 1990s. The contribution limits of the ROTH IRA are the same as the Traditional IRA. In 2014, you can make a contribution of $5,500 (plus an additional $1,000 if you are age 50 or older) if you meet the contribution requirements. You are eligible to make a full ROTH IRA contribution if your AGI is less than $181,000 and are eligible to make a partial ROTH IRA contribution if your AGI is between $181,000 and $191,000. Unlike Traditional IRAs, there are no rules pertaining to whether or not you are covered by an employer sponsored retirement plan.Page 2 of 2 - ROTH IRA contributions are not tax-deductible. Instead, the money that you contribute to a ROTH is taxable in the year it is earned, but the contribution will then be allowed to grow and compound tax free. Distributions from a ROTH IRA (assuming they meet requirements) are not taxable. Direct contributions you make to a ROTH IRA may be withdrawn tax free and penalty free at any time. However, earnings within a ROTH IRA may only be withdrawn tax free and penalty free after five years and having reached the age of 59 �. If those requirements are not met then earnings will be taxed and incur a 10 percent penalty. Unlike Traditional IRAs, there are no rules for when you need to start taking distributions from a ROTH IRA. How do you decide which type of IRA is right for you? For starters, you want to think about your own tax situation. If you are currently in a low tax bracket and anticipate that you may be in a higher tax bracket in your retirement years, then a ROTH IRA makes sense. It would be preferable to pay tax now at a lower rate than pay tax later at a higher rate. On the other hand, if you are currently in a high tax bracket and think you will be in a lower tax bracket in retirement than a Traditional IRA makes sense. The problem here is that your current income may make you ineligible for a tax-deductible contribution. If that is the case, you may want to consider tax-deferred savings options you have through employer-sponsored retirement plans. Both Traditional IRAs and ROTH IRAs are excellent retirement savings options. It is often wise to have both types of accounts, as this will offer tax planning flexibility in your retirement years. If you find that you are building up tax-deferred savings in your 401(k) or SIMPLE plan at work, then you may want to consider ROTH IRA contributions (if you are eligible) for diversification. Finally, it is important to remember that the contribution limit for IRAs is subject to change each year. Make sure that you check the contribution limit as you will be penalized for over contributing.Jorie Pitt, CFPR is a financial planner for AHC Advisors in St. Charles, Ill. She is a graduate of the University of Illinois, Champaign, which she attended as a Chick Evans Scholarship Recipient. 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ame lady in Wal-mart: (With a big smile on her face as she notices my Asics sneakers) 'I see you have on sneakers today!"BeBe: 'Yes girl. I've been down in the country, jumping on trampolines, riding bikes and everything."BeBe: (As she walks away) " So my sneakers make her happy and my heels make her sad...she will be sad a long, long, time, but at least I made her smile this time."Check out my sneaker tracks in a peaceful place that made me smile today. 
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