Posted on September 23, 2001 at 19:33:56:
You can’t contribute to an IRA—regular or Roth, deductible or nondeductible—unless you have earned income. But a working spouse can set up a spousal IRA for a spouse who earns less than $2,000, as long as they file a joint tax return.
A traditional deductible IRA grows tax-deferred. At age 59 ½, the owner can withdraw funds without penalty, but the money is taxable as ordinary income. At age 70 ½, the owner must start taking minimum distributions.
A Roth IRA grows tax-free. Once the account is five years old, the owner over 59 ½ can take penalty-and tax-free distributions, but there are no required distributions during the owner’s lifetime. At the owner’s death, the money is subject to estate taxes, but not income taxes.
If a traditional IRA is converted to a Roth, income taxes must be paid on the old IRA. A Roth can be recharacterized to avoid conversion taxes, but there are some risks.
What kind of retirement savings is best for you?