That’s right; I said that you can still put money away for your 2005 Roth IRA! Whether you have been feeling guilty for breaking that promise you made to yourself to save for retirement or you told yourself that you would wait until next year, you now have a second chance. Every year the IRS gives us three and a half extra months to make contributions for the previous year. For those of you who are holding off until the last minute to avoid the pain, you will be happy to know that this year we have until midnight on April 17th to get those taxes postmarked.

If you have been considering a Roth but have been holding off because you are not sure how they work, there are a few things that you should know. According to the IRS a Roth IRA is also a personal savings plan that operates somewhat in reverse compared to a traditional IRA. For instance, contributions to a Roth IRA are not tax deductible while contributions to a traditional IRA may be deductible. However, while distributions (including earnings) from a traditional IRA may be included in income, the distributions (including earnings) from a Roth IRA are not included in income. For both IRA types—traditional and Roth—earnings that remain in the account are not taxed.

Simply put, anyone with earned income, subject to limitations, may contribute to a Roth IRA. The participation requirements are similar to those of a traditional IRA except that a participant may continue to contribute to a Roth IRA after attaining the age of 70 ½ so long as he or she has earned income.

Contribution limits for both Traditional and Roth IRAs are identical but the ability of a participant to contribute to a Roth IRA is different. The participant may be limited by his or her adjusted gross income. The maximum amount of regular contributions that can be made to a Roth IRA is the lesser of 100% of a participant’s compensation or $4,000 for tax year 2005 or 2006. If you happen to be age fifty or over by the end of the taxable year you may be eligible to make “catch-up” contributions. These catch-up contributions allow you to add an extra $500 to your Roth IRA in 2005 (this benefit is also available for Traditional IRAs). This amount increases to $1,000 in 2006.

The $4,000 maximum contribution limit is phased out depending upon the participant’s modified gross income and filing status. An individual may contribute to both a traditional and a Roth IRA for a given year, but the total amount of contributions to both accounts may not exceed $4,000.

Once contributions are made, the earnings grow tax free. The qualified distributions, also known as withdrawals, are tax and penalty free and the contributions may also be recovered without paying taxes and penalties. With all of these features the Roth IRA is still often overlooked because it fails to deliver instant gratification (the Roth IRA does not offer the benefit of tax reduction in the tax year that a contribution is made).

For those who are not concerned with the tax deduction, the Roth offers other important features. While traditional IRAs require distributions to be taxed, Roth IRAs do not. This is particularly important because it is likely that you have no idea what tax bracket you will be in when your distributions are made. You may be in the 27% tax bracket today but you may be in the 36% or higher bracket when you retire. If your retirement account grows to $3,000,000 for example, you may be paying a significantly larger amount in taxes at distribution time than you may have ever anticipated.

Another benefit for those with Roth IRAs includes the lack of required distributions. In a traditional IRA, participants are required to begin taking distributions at age 70 ½. If an individual fails to make this withdrawal the IRS may impose a fine of 50% of the amount that you were supposed to withdraw! With a Roth IRA, the participant does not have to take a distribution. This may sound odd but many individuals reach this age and do not need or want to take the distribution.

For more information on this subject as well as information regarding rollovers, contribution limits, conversions, recharacterizations and distributions please visit our Web site at http://www.placetrade.com/roth-ira.htm or the IRS at http://www.irs.gov. Please be sure to speak with your tax advisor prior to determining which retirement plan is best for you. Remember that the deadline is fast approaching and second chances don’t come around that often!