There is often confusion as to the different types of IRAs available in the market.  Although Roth IRAs and traditional IRAs can be invested jointly into one transaction, they have advantages and disadvantages.

First, the eligibilities for investing with a Roth IRA and a traditional IRA are different.  To be eligible for a traditional IRA, the individual must be under the age of 70 ½ years and have taxable compensation (a steady income source.)  For Roth IRAs, generally you can contribute if you have taxable compensation and your modified AGI (adjusted gross income) is less than;   

The limits to the traditional IRAs are the same as the Roth.  In 2008 the limit was $5,000 or 100 percent of the taxable compensation, whichever was less.  If over the age of 50, the limit was $6,000 or 100 percent of taxable income.

The tax benefits of Roth IRA’s and traditional IRA’s are different and this is where the difference mattes the most.  In 2008, the traditional IRA was fully tax deductible if the individual was not also participating in a retirement plan sponsored by an employer.

The tax benefits of Roth IRAs are quite different.  The required minimum distribution rules for traditional IRAs do not apply to Roth IRAs.  All contributions made are not tax deductible, but distributions are usually tax free.

Due to the fact that Roth IRAs are funded with after-tax funds, if you are older than 59 and a half and leave the earnings in the Roth for five years, the income and earnings will be tax free forever!  Because you are not required to ever take money from your Roth IRA, the income and earnings in the Roth IRA can be tax free for life!  As long as you are earning taxable compensation and your income remains below the limit, you can continue to contribute up to several thousand a year for life.

Keep in mind the modified adjusted gross income limits differ for those who are married and wish to file jointly.