First, you should determine if you are qualified to contribute to either. You may contribute to either traditional or Roth IRAs only to the extent you have earned income includible in gross income. The maximum contribution for a taxpayer and the taxpayers spouse is $4,000 each. Individuals who are at least age 50 will be able to make an additional contribution of $500 ($1,000 for 2006). You have until April 17th, 2006 to make an IRA contribution for the 2005 tax year. You must be less than age 70 to purchase a traditional IRA.

In addition to the $4,000 limit mentioned above, contributions to traditional IRAs can be further limited when the individual (or spouse) is an active participant in a retirement plan maintained by an employer. The maximum deductible IRA contribution for an individual who is not an active participant, but whose spouse is an active participant, is phased out when modified adjusted gross income is between $150,000 and $160,000.

The maximum deduction for an individual who is an active participant in a retirement plan is phased out when modified adjusted gross income is between ($50,000 to $60,000 for single and head of household; $0 to $10,000 for married filing separate).

When both spouses are active participants in an employer sponsored retirement plan, tax deductible contributions are phased out when modified adjusted gross income is between $70,000 and $80,000. If your tax deduction is limited by the active participation rules, look to the Roth rules.

Roth IRAs are not subject to the active participation rules. However, contributions to Roth IRAs are phased out when income exceeds the thresholds. Contributions made by single filers are phased out when modified adjusted gross income is between $95,000 and $110,000, and for joint filers with modified adjusted gross income between $150,000 and $160,000, and for married filing separately with modified adjusted gross income between 0 and $10,000.

Roth and traditional IRAs also have different distribution rules, which goes beyond the scope of this article.

So if you qualify for both traditional and Roth, and you are not concerned with the different distribution rules, what is best?

With traditional IRAs, you get an immediate tax deduction. Tax on your contribution is deferred until final distribution. Also, all earnings inside your traditional IRA grow tax deferred. Roth IRAs offer no immediate deduction. However, all earnings inside your Roth IRA grow tax free, not tax deferred.

Therefore, you must consider what tax bracket you are in now and what tax bracket you will be in when you receive the distributions. If you are in the 10 or 15 percent tax brackets, Roth may be a good choice. Based on a $4,000 contribution, you are bypassing immediate tax reduction of $400 to $600 in exchange for a lifetime of tax free accumulation on your $4,000 investment. This option looks even stronger if you expect to be in a higher tax bracket when you finally distribute your accumulation.

On the other hand, if you are in the 35 percent tax bracket, a Roth election means bypassing $1,400 immediate tax reduction (on a $4,000 contribution). If you expect to be in a lower tax bracket when you finally distribute your investment, as many retirees are, it makes sense to contribute to a traditional IRA and get an immediate tax break.

Tax accountant John Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Kent Everett area on various tax issues and provides tax preparation. Seattle Bellevue tax accountant John Huddleston is a frequent publisher of tax saving ideas.

Roth IRA VS Traditional IRA Account - Differences in Tax Contribution, Deduction, Plan & Limitation
The main advantage of a traditional IRA versus a Roth IRA is the tax benefits immediately realized. To receive the maximum tax benefits of a traditional IRA the taxpayer must have either of the following qualifications:The taxpayer can be a member of...

An Eye On Taxes And Your Portfolio
I learned something new today. Or maybe I received financial revelation. Regardless of what happened, I am about to share this combination income tax, portfolio building finding with my faithful radio listeners and article readers. Do what the hell I...

IRA Tax Deduction - Any Benefits?
Having an Individual Retirement Arrangement can not only help you in the long run, but also with an IRA tax deduction; it can help you in the short term as well. Basically an Individual Retirement Arrangement or an IRA is a personal savings plan that...

10 Things Every Taxpayer Needs to Know About the Pension Law
The Pension Protection Act, signed into law on August 17, 2006, is designed to address the nation-wide problem of under-funded pension plans. The law penalizes noncompliant companies and encourages employee contributions, but many of the changes dire...

Ditch Traditional Gift Giving - Buy Personalized Gifts
If you are giving gift to someone who is celebrating his birthday or to a couple on their wedding day, chances are, you are in a dilemma looking for a gift that is special, unique and one that will please the recipient. Traditional gift giving will h...

Choosing the Right Home Mortgage Refinance Loan
If you are considering a home mortgage refinance loan, it is important to choose the right type of loan for your financial situation. Choosing the wrong home mortgage refinance loan could result in overpaying thousands of dollars or even losing your...

No Down Payment Mortgage Loan - Ways to Buy a Home with Zero Down
If you want to buy a new home, but have little money in the bank, there are ways to get approved for a home with no money down. New homebuyers have a multitude of mortgage options available to them. These options make buying a home with little out-of...

The Power Of The Tea Kettle
Whats a kitchen without a tea kettle; that most traditional of appliances that has been loyally brewing our tea for generations? While the tea kettle has evolved over the years its shape and color reflecting the ever-changing style of the times its...

Home Mortgage Refinance Loan: The 2007 Conforming Loan Limit & Jumbo Mortgage Loans
The Conforming Loan Limit is the maximum amount traditional mortgage lenders will loan for your home mortgage refinance loan. If you need to borrow more than this amount you will need to refinance using a Jumbo Mortgage Loan. Here is what you need ...

Getting a Home Equity Loan Without Perfect Credit
Getting a home equity loan without perfect credit can help you pay forhome repairs, consolidate debt, or provide a college education. Evenwith poor credit, you have several factors going for you, including yourequity investment. And with online lende...