As U.S. taxpayers contemplate funding IRAs, they may wonder which type of IRA - Roth or Traditional - is the better choice. If you are one of these individuals, here is an outline of some of the differences between the two retirement accounts, their eligibility requirements and other factors to consider when choosing the account that's right for you.

Contribution Limits
The contribution limits for the Roth and Traditional IRAs are the same. For tax year 2007, for example, you could contribute up to $4,000 to your IRA, plus an additional $1,000 catch-up contribution if you reached age 50 or older by the end of the 2007 tax year. Here is a chart outlining contribution limits for tax years:

Tax Year	Regular Contribution Limit	-	Tax Year	Additional Catch-Up Contribution Limit
2007	$4,000		2007	$1,000
2008	$5,000		2008	$1,000
2009 and beyond	$5,000		2009 and beyond	$1,000

(For a full list of 2008 tax updates, check out New Retirement Plan Limits For 2008.) 

Deductibility
One of the major factors for deciding between a Roth and Traditional IRA is your eligibility to deduct Traditional IRA contributions and in turn get a tax break for the year you make the contribution. Your eligibility to deduct Traditional IRA contributions, however, depends on whether you meet certain requirements. (To find out how your deductibility is determined, see the chapter "Contributions" of the tutorial Traditional IRAs and the article Traditional IRA Deductibility Limits.) Contributions to Roth IRAs are never deductible (see the chapter "Contributions" in the tutorial Roth IRAs).

Contribution Age Limitations
If you want to be able to contribute to your IRA for as long as you like, you need to consider the age limits placed on IRA contributions. You may not make a participant contribution to a Traditional IRA after and for the year you reach age 70.5. For Roth IRAs, there is no age limit.

Income Limitations
One factor that determines whether a Roth or Traditional IRA is better for you is your income, which dictates your eligibility to contribute to a Roth IRA. To be eligible, your income must be the following:

• no more than $166,000 if you are married and file a joint tax return.
• no more than $10,000 if you are married and lived with your spouse for any period during the tax year, but filed a separate tax return.
• no more than $114,000 if you file as "single", "head of household" or "married filing separately" and did not live with your spouse at any time during the tax year.

If your income exceeds the amounts indicated above, you may not contribute to a Roth IRA. In addition, your Roth IRA contribution limit may be lowered if your income falls within certain ranges (between a certain amount and the income limits listed above). Consult with your tax advisor to determine the maximum amount you may contribution to a Roth IRA.(For more on this subject, see our tutorial on Roth IRAs.)

Income caps do not apply to Traditional IRA contributions.

Required Minimum Distributions
If you don't ever want to be required to start distributing your retirement assets at any time, you need to consider the IRA rules for required minimum distributions (RMD). With a Traditional IRA, you must begin to take RMDs by April 1 of the year following the year you reach age 70.5. This means you must gradually reduce your IRA balance and add the distributed amount to your income, even if you are not in need of the funds.
Roth IRA owners are not subjected to RMD rules.