How would you describe how Traditional IRAs and Roth IRAs work (see details)?
Anyone over 18 with earned income can invest in an IRA. The maximum contributions were raised in 2008 to $5000 if you are under the age of 50 and $6000 if you are over 50. The IRA would be held at the firm (“custodian”) you open the account such as Smith Barney, Merrill Lynch, E*trade, etc…. There are advantages and disadvantages to both types of IRAs. In a traditional IRA you invest pre-tax money (get a tax deduction for all contributions) and that money grows tax free until you begin withdrawals. When you withdrawal money all distributions are taxed as ordinary income. A traditional IRA would be better if you are in a higher tax bracket now and expect to have a lower income in retirement when withdrawals are occuring. Also a Traditional IRA would be a better investment if we were to have a flat tax in the future. In a Roth IRA you invest with after-tax money and your gains are tax deferred until you begin withdrawals. A Roth IRA would be better if you are in a lower tax bracket now
