IRA

• The funds in an Individual Retirement Account (IRA) grow tax-deferred as long as they're not withdrawn until you're age 59 1/2 or older. Money withdrawn early is penalized an additional 10 percent. (There are a few exceptions for such circumstances as higher-education expenses, a first-time home purchase and medical hardship.)
  
  

Traditional IRA

• A traditional IRA allows you to contribute up to $5,000 ($6,000 for 50 years or older) annually and to receive a tax deduction for the amount contributed. Withdrawals are added to adjusted gross income and taxed accordingly.
  A traditional IRA may be converted to a Roth if you meet the Roth income limits described in Section 4.
  
  

Roth IRA

• Roth IRAs also allow up to $5,000 of earned income to be contributed, but there's no tax deduction. However, funds--and any earnings--can be withdrawn tax-free after age 59 1/2.
  
  

Roth Income Limits

• To qualify for a Roth IRA contribution, a single filer must have less than $116,000 in annual income. If you're married filing jointly, you must have less than $169,000 in adjusted gross income--if you're married filing separately, you must have less than $10,000 in adjusted gross income for the spousal contribution.
  
  

Traditional Income Limits - Covered By Employer

• To qualify for a tax deduction with a traditional IRA, a single filer must have less than $65,000 in adjusted gross income and married couples less than $109,000. Married filing separately must have less than $10,000 adjusted gross in come for the spousal contribution. This limit is for those covered by an employer plan.
  
  

Traditional Income Limits - Not Covered By Employer

• Those not covered by another plan can make contributions with no income limitations for single filers. Married couples who's adjusted gross income is less than $176,000 have no contribution limits and can claim a deduction. Those with a higher income can make a contribution but not claim the deduction.