The IRA or Individual Retirement Account is a savings plan provided by the US government for anyone who has a taxable income in order to save for retirement. In the traditional IRA you get to put the money in your account tax free. Then the account grows tax free. You will only have to pay taxes when you remove the money in your retirement years. The ROTH IRA (Roth is the name of the congressman who wrote the bill supporting the plan) has you pay your taxes up front, but then you receive you retirement money tax free later. You can find all of the dry and boring details at the IRS site.

Here’s the core Roth IRA rules:

1. The annual contribution limit for 2009 has stayed at $5000. However, if you’re over 50 you can contribute $6000 to help improve your account. Please please please don't wait until your 50 to start though. Compound interest will smoke extra deposits if you give it enough time.
2. If you’re single and make (AGI) between $105k and $120k your maximum contribution is lower than $5000. Over $120k and no IRA for you. For joint filers your phaseout range is between 166k and 176k.
3. You can withdraw any money you’ve invested without paying penalties or taxes on it anytime. You can not withdraw money you’ve earned in the account until the appropriate retirement age. This is nice if you know you should be saving for retirement, but you’re still worried you don’t have the money to spare. This is bad because you may be tempted to remove the investment when you don’t really need to.
4. You must be 59.5 years old and have held the IRA for 5 years to withdraw without penalty.
5. There are all types of conversion rules to change your traditional IRA to a ROTH IRA.

To read an interesting discussion on the pros and cons of choosing a ROTH vs traditional check out the ROTH IRA Rules here.

If you're anything like me you probably don't want to play bridge from age 65 to 100.  You'll probably like to be involved in charities, travel, live some dreams, help some family and friends, continue being yourself.  Unfortunately these things cost money and social security is not going to cut it even if you have no bills left other than taxes.

Say you want to have a income of $50,000 per year.  Using your ROTH IRA (so I can negate tax issues) history shows that you can safely pull 5% per year of your total nest egg.  That equates to a total savings of $1,000,000.  I know that sounds like an impossible amount to save, but lets say you start saving your maximum ROTH allotment.  Saving $416 per month at a reasonable return of 8% per year you'll have $1,000,000 saved for retirement in 35 years.  If you're under 30 you can make it with just your ROTH IRA alone.  If you're not under 30 and want to retire by 65 you'll have to use some other investment tools like 401k, receive better returns on your investment, or just generally invest without the tax shelters.  If you're going to improve your returns you might want to learn stock market basics first.