The Roth IRA, named after Senator William Roth (R. DE) who proposed its creation, differs from the traditional IRA in four key ways:

• Contributions to the Roth IRA are not tax deductible
  Traditional IRA's allowed individuals not participating in an employee sponsored 401K plan and making less than $25,000 a year ($40,000 for a couple) to deduct their contributions to the IRA each year; contributions to a Roth IRA cannot be deducted.

• Distributions from the Roth IRA are tax exempt
  Traditional IRA's require income tax to be paid on all money withdrawn from the IRA. Roth IRA distributions can be taken tax-free provided that they are taken after the age of 59 ½ and the IRA has been in existence for at least five year. Up to $10,000 can be taken out tax-free after five years to be used for the purchase of a first home. Finally, money can be withdrawn penalty free to pay for higher education.

• Individuals over 70 can continue to invest
  Regular IRAs require automatic distributions at the age of 70 ½, but Roth IRAs allow continued contributions past the age of 70 ½ and do not have any mandatory withdrawal rules.

• Individuals are eligible if income is below $110,000 (single) or $160,000 (joint)
  Unlike traditional IRAs that are available to everyone, individuals who exceed the maximum income level for Roth IRA investments are not eligible for the tax-free earnings. To invest in a Roth IRA completely tax-free a person of single status must have a gross income of $95,000 or less. Those with incomes between $95,000 and $110,000 are still eligible for a Roth IRA, but the allowed contribution gradually decreases for this income group. For couples filing jointly this occurs between $150,000 and $160,000. Contributions are limited to $2000 annually; $4000 for couples. The limit will be indexed for inflation beginning this year.