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 a company retirement program (401k) but must have an adjusted gross income (AGI) of less than $52,000 (single) or $83,000 (married). If the traditional IRA account holder is not a member of a company sponsored retirement program there are no AGI limits.

If qualified, the yearly contributions to a traditional IRA are fully tax-deductible. A maximum contribution ($4000) would result in a tax savings of $1000 if paying taxes in the 25% bracket (AGI of $30,651 to $74,200). The maximum contribution will rise to $5000 in 2008.

The Roth IRA had an advantage when it comes time for disbursement of the account. With a Roth IRA, disbursements are tax free but these disbursements must be qualified. Contribution funds can be withdrawn at any time, penalty free.

Earnings can be withdrawn if the account has been in existence for five years and the account holder has reached the age of 59, or has died, or has become disabled, or to pay for the construction of a first home.

Since Roth IRA disbursements are tax free a traditional IRA will only have a higher return than a Roth IRA if the tax savings are reinvested because traditional IRA disbursements are treated as regular income. There are guidelines to qualifying for a Roth IRA:

must have earned income
income under $99,000 for full contributions ($4000 under 50, $5000 over 50) income under $114,000 for a partial contribution

Benefits of owning an IRA account are undeniable. Which type to own can be a difficult choice, unless you make over $114,000 a year then there is only one option. Traditional IRAs do benefit the taxpayer in the short term, but are penalized when it comes time to withdraw.

IRAs can be converted from traditional to Roth but not vice-versa. You can own both types of IRA accounts also, but the contribution limits are less (currently $3000). To me, it seems the best way to go would be to start with a traditional IRA and convert to a Roth later down the road.

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