O.K. So you have three IRA options. What's the difference, and what does it mean to you? Here are a few facts that may help. However, this is just an overview. As we all know, IRAs are complicated, with lots of rules and regulations. So, while we think we're giving you the most important facts in the following calculators, we suggest you consult your accountant or tax advisor before you open an IRA.

 

This is what most people think of when they hear the term "IRA." For 2004, you can put up to $3,000* per year into a deductible IRA and not pay any income tax on that $3,000. For 2005, you can put up to $4,000* per year into a deductible IRA and not pay any income tax on that $4,000.You also don't pay tax on any investment earnings within the IRA until you begin taking the money out.

 

This is the newest one! The key things to remember about the Roth are:

 

• You can make contributions up to $3,000 just like a traditional IRA.

 

• All contributions are non-deductible, which means you have to pay tax on the money first.

 

• The earnings on the Roth IRA are tax-free rather than tax-deferred. No income taxes are due when you withdraw money from the account.

 

In other words, you cannot claim an up-front deduction for your contributions to the account. But, unlike traditional IRAs, you'll pay no federal income taxes on the account's investment earnings as long as you meet the tax law's requirements.

 

This IRA is for people who are not eligible for a regular deductible IRA. With this option, you can make annual contributions of up to $3,000* for 2004, but you have to pay income tax on that $3,000. And, just like the deductible IRA, the money your investment earns is not taxed until you take it out.

 

*Note:  For 2004, $3,000 ($3,500 if you are 50 or older) is the amount for singles.  Couples filing jointly with separate IRAs can contribute up to $6,000 ($6,500 if you are 50 or older).  If your taxable compensation is lower than these amounts, then your contributions are limited to your taxable compensation amount.

 

For 2005, the dollar amounts went up to $4,000 ($4,500 if you are 50 or older) is the amount for singles.  Couples filing jointly with separate IRAs can contribute up to $8,000 ($8,500 if you are 50 or older).  If your taxable compensation is lower than these amounts, then your contributions are limited to your taxable compensation amount.