A Roth IRA, named for the late Senator William V. Roth Jr., came about as a result of the Taxpayer Relief Act of 1997.

A Roth IRA differs from traditional IRAs in that your contributions are after-tax rather than tax-deferred. You get no tax deduction for contributions to a Roth IRA now, but there are many advantages to a Roth IRA.

If you meet certain requirements, all earnings are tax-free when you withdraw them. Under certain circumstances you can make early withdrawals without penalty. In addition, there is no requirement that you start taking minimum withdrawals after age 70½. The money in your Roth IRA can continue to grow and all earnings will still be tax free when you or your beneficiary start withdrawing them.

Because you don’t get tax deductions for your contributions, they do not lower your taxable income for the year in which you make the contribution. However, traditional IRA funds are taxed at the time you withdraw them. If tax rates were to drop in the years until you retire, then a traditional IRA might be more profitable in the long run. But tax rates usually increase and it seems unlikely that the government would not raise taxes in the future to deal with the costs associated with the retirement of the large population of baby boomers.

The maximum contribution for a Roth IRA for 2006 and married, filing jointly, is $4,000 if your total adjusted gross income is less than $150,000. If your total adjusted gross income exceeds $160,000 you are not eligible to contribute to a Roth IRA. If you file head of household or married filing separately, you can contribute $4,000 if your AGI is under $95,000. In either case, you can contribute more, up to %5,000 for the year 2006 if you are age 50 or older.

Whether a Roth IRA is right for you depends on your individual financial picture. If you are considering a Roth IRA, consult your fnancial advisor.

What should you do about matching your employer’s contributions to your 401k?

If your employer offers a match on the dollars you contribute to your 401k, you really need to take advantage of that. There are very few blanket statements that you can make when it comes to personal finance, but this one comes as close as possible: always contribute at least as much as they’ll match. You’d better have a really good reason if you’re not going to contribute that much.

Matching dollars are free money. They’re a way to double your investment in the 401k — that’s not easy to do. To put some numbers into the mix, consider that the S&P 500 has shown long-term (periods greater than 20 or 30 years) average annual returns in the 10% ballpark for most of its history. However, you had to be a risk-taker to get those returns — leaving all of your money in the stock market, going up and down with investor emotions.

Matching dollars do even better: you earn 100% on the amount they match. What’s more, you aren’t taking market risks to do so. It’s a pretty good deal. If you don’t know whether your employer matches, find out – and contribute enough to get the match.

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