A Roth IRA is a special type of individual retirement arrangement that has unique tax benefits different from those associated with “Traditional” IRAs.

Perhaps the most important difference between Traditional IRAs and Roth IRAs is the tax treatment of the earnings that accrue within each type of IRA.  Earnings that accrue within a Traditional IRA are “tax-deferred” meaning they are not tax until they are distributed from the Traditional IRA.  On the other hand, earnings that accrue within a Roth IRA are typically tax free, meaning they are not taxed at the time of accrual or when they are subsequently distributed from the Roth IRA.  In addition, Traditional IRA contributions are often tax deductible while Roth IRA contributions are always made with after-tax dollars.

Unlike with Traditional IRAs, distributions are not required from Roth IRAs when you reach age 70½.  In fact, you may even continue funding a Roth IRA beyond age 70½ provided you (or your spouse) have earned income from working and meet certain other basic eligibility criteria.

Roth IRAs were created as part of the Taxpayer Relief Act of 1997, and became effective January 1, 1998.

While Roth IRAs have been available for more than a decade, they generally have not received as much publicity as Traditional IRAs.  Although there are arguably a number of reasons why Roth IRAs have not historically received as much attention as Traditional IRAs, much of the obscurity is likely attributable to the simple fact that a contribution to a Roth IRA is not tax deductible.  However, with the tax laws regarding Roth IRA conversions set to be liberalized significantly beginning in 2010, many tax planning professionals and investors are starting to pay closer attention to the benefits of Roth IRAs.