So now you have three Individual Retirement Accounts to choose from. Or at least you will have, starting next year. Which one looks best? In almost all cases, the new Roth IRA wins the day.

In case you're wondering, it's named for Sen. William Roth Jr. by odd coincidence, the chair of the Senate Finance Committee. (I'm collecting signatures to stop Congress from naming anything after politicians except bridges and roads.)

Whether to sign up for this IRA is a no-brainer. If you qualify, just say yes. You put away up to $2,000 annually after tax ($4,000 per couple), hold for five years, then never pay a nickel of federal tax on the money you earn if it's spent on your first house or after you reach 59 and a half. It's also free when used if you're disabled or die.

What if you unexpectedly need money for some other purpose? Tax-free withdrawals will be allowed at any time, up to the amount you put in. Only larger withdrawals are going to be subject to tax.

The Roth IRA starts phasing out for singles with adjusted gross incomes of $95,000 and vanishes at $110,000. For couples, the range is $150,000 to $160,000. Note that all these rules are for federal tax. Whether states copy remains to be seen.

Roths (in the plural, the name of this IRA is even worse) "hold the most for long-term retirement savings," says Stephen Corrick, tax partner at Arthur Andersen in Washington, D.C. Over long periods of time, tax-free compounding is worth far more than an upfront tax deduction, he says.

You can also make annual contributions as long as you like. You're not forced to start withdrawing the money at the age of 70 and a half, as is the case with existing IRAs.

Young people might choose a Roth IRA when they're saving for their first home. For this purpose, they can take up to $10,000 tax free, provided they've held the account for at least five years.

As an alternative to a Roth, Congress improved the existing tax-deductible IRA. You contribute up to $2,000, which grows tax-deferred. But you're taxed when you take the money out and normally owe a 10 percent penalty on withdrawals prior to 59 and a half.

Deductible IRAs are for workers who don't have company retirement plans. Even if you have one, you get this deduction only if your income is lower than a specified amount.


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