Roth IRAs allow you to place money in a long-term savings plan and defer income tax on the amount you invest and the investments earnings. Roth IRAs allow an annual contribution of up to $4,000 for 2005 (with a $500 50-and-over catch-up provision), as long as you earn at least as much as you contribute.
As a retirement plan, Roth IRAs differ from regular IRAs in some interesting — and important — ways.
There is an income threshold on the Roth IRA. If you make too much money, you can’t play the Roth game. You start losing the ability to contribute to a Roth IRA if your income is over $95,000 and you’re single, or over $150,000 if you’re married and filing a joint tax return.
There is no age limit with the Roth IRA. You can make contributions no matter how old you get. With a regular IRA, you have to stop making contributions in the year in which you hit age 70-1/2.
There is no age requirement for mandatory withdrawals of money from the Roth IRA. You are required to start taking money out of a regular IRA in the year in which you reach age 701⁄2.
For the Roth, you never have to take the money out: You can leave the money invested until you die and the investments then get passed on to your beneficiaries. Furthermore, when you do start withdrawing money, you can withdraw as little or as much as you want — there is no required withdrawal formula like there is with the traditional IRA.
The money in your Roth IRA grows tax-free as opposed to tax-deferred in the traditional IRA. As long as you keep your money in a Roth for at least five years and you reach at least age 591⁄2, you can take the money out whenever and however you want, with no tax consequences.
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Source:http://www.dummies.com/how-to/content/how-roth-iras-differ-from-regular-iras.html
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