Retirement Savings-Traditional and Roth IRAs for 2007

As you set your sights on retirement planning, you'll need to learn the basics about two types of retirement accounts: the Roth Individual Retirement Account (IRA), and the Traditional Individual Retirement Account. When you're trying to calculate which one is best for you and your financial situation, you'll need to consider:

• Current age
• Annual contribution
• Expected rate of return
• Age of retirement
• Current tax rate
• Retirement tax rate
• Adjusted gross income
• Marital status
• Employer plan contributions
• Total non-deductible contributions
• Total contributions
• IRA total after taxes

In 2007, the Annual contribution for an IRA is just $4,000; in 2008 and beyond, this moves up to $5,000. As of 2006, anyone who was 50 or older could make an additional contribution of up to $1,000. There is a limitation based on age; nobody can contribute to a traditional IRA when they reach 70.5 years of age.

Anyone is allowed to contribute to an IRA if they have a consistent income that is equal to the amount of their contribution. Married couples are allowed to contribute to an IRA as long as one working spouse is earning enough to cover contributions for the couple.

Both types of IRA accounts accumulate interest, dividends, and capital gains. However, the key benefit of these plans is that they are tax-free under certain circumstances.

Key things to remember:

1. A Roth and Traditional IRA are essentially savings plans
2. Withdrawals are tax-free within certain limits
3. In 2007, the Annual contribution for an IRA is just $4,000; in 2008 and beyond, this moves up to $5,000