• Roth IRAs differ from traditional IRAs on two basic levels. The contributions to traditional IRAs are not taxed until they are distributed, and depending on your circumstances, your contributions may be tax-deductible. Roth IRAs are also different when it comes to the length of time you can contribute and the age at which contributions must stop. Some Roth IRA contributions can be withdrawn prior to retirement age without penalty which is not true of traditional IRAs.
  
  

Who Can Contribute?

• Contributions to a Roth can be made if you have taxable compensation defined by the IRS as wages, salaries, tips, professional fees, bonuses, amounts received for personal services, commissions, self-employment income, non-taxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. In 2010, you can contribute to your Roth: if you are married filing jointly or a widow(er) and your modified Adjusted Gross Income (AGI) is no more than $177,000; you are single, head of household, or married filing separately and haven't lived with your spouse in the tax year and your modified AGI is less than $120,000; you are married filing separately and you lived with your spouse, and your modified AGI is under $10,000. Unlike a traditional IRA, you can contribute at any age.
  
  

Contribution Limits

• If you contribute only to a Roth IRA, you can contribute the lesser of $5,000 ($6,000 if you are 50 or older) or your taxable compensation minus all personal contributions to all other IRAs. If you participated in an employer-maintained 401(k) plan that went into bankruptcy, you may be eligible to contribute up to $8,000. Contributions for a particular tax year can be made until your filing deadline for that tax year, usually April 15. Contributions may be reduced depending on your income. Reduced contribution limits apply in the following situations: married filing jointly and widow(ers) earning more than $166,000 but less than $177,000; those married and filing separately who lived with their spouse and make more than $0 but less than $10,000; and single, head of household or married filing and living separately taxpayers who earn more than $105,000 and less than $120,000.
  
  

Rollovers and Distributions

• You may be able to roll over contributions from a traditional IRA to a Roth without penalty if you make the change within 60 days of the IRA distribution. If you have a traditional IRA managed by a trustee, you can do a trustee-to-trustee transfer of funds without penalty. If you have only one trustee managing both your traditional and Roth IRAs, he can transfer money from one to the other without penalty. If you have an employer-qualified plan that allows distribution to a Roth, no tax is withheld if it is paid directly to the trustee of the plan. Qualified distributions from Roth IRAs, with the exception of contributions made from rollovers of traditional IRAs, are not taxable. Contributions to traditional IRAs are made from pre-tax income, which makes distributions taxable, whereas Roth contributions are post-tax compensation. A qualified distribution must meet one of the following criteria: received more than five years from the first contribution, made on or after you turn 59-1/2, you become disabled, made to a beneficiary or your estate after your death, or used to buy or build your first home.