Traditional vs. Roth IRA: How Are They Different?

QA My husband and I are in our early 50s and we want to open IRA accounts outside of our 401(k) plans. We aren't sure whether to get a traditional IRA or Roth IRA. How are they different?

--K. Parker

Haledon, NJ

The biggest difference between the two types of IRAs is

All accumulated interest, dividends, and capital gains on a traditional IRA are tax-deferred until the money is withdrawn. At age 59 1/2 you can begin withdrawing funds, but the money will then be taxed. With a Roth, you can withdraw all your money 100% tax-free at age 59 1/2.

Since you're both over 50, you can make additional, or "catch-up" IRA contributions. You also can contribute more than the $4,000 limit per year. For tax years 2006 and 2007, those 50 and older can contribute up to $5,000; in 2008, that amount increases to $6,000. Husband and wife can each contribute. For a Roth, the maximum contribution allowed for couples is $150,000 yearly.

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