There has been a commercial airing lately touting a particular antacid. A guy goes into a burger joint and orders a meal to which the order taker responds "Do you want that to hurt now or later?". That is in some way the main difference between a traditional IRA and a Roth IRA. With a traditional IRA you exclude your contribution from taxable income now and later, when you withdraw those funds, you include them in your taxable income. The other option is a Roth IRA where your contribution today has no effect on your taxable income today or when you withdraw the funds later.
Of course there are a lot of rules that effect the deductibility of a traditional IRA and you should make sure you qualify before contributing. The first rule is that you receive compensation that is includible in gross income and you were under the age of 70 1/2 the entire year. Also, if you OR your spouse is covered under an employer-maintained retirement plan the amount of your deduction may be reduced or eliminated. The maximum contribution amount for 2010 is $5,000 or if you reach age 50 by the end of the year you can make a "catch up contribution" and increase your maximum to $6,000. Your contributions must be made by the due date of your return regardless of any filing extensions.
**HINT HINT** You can use your refund to fund your IRA. Simply leverage the speed of filing electronically allowing for direct deposit. You can direct deposit the refund into as many as three separate accounts including an IRA
The amount of your income will also effect how much you can deduct. Contribution limits begin phasing out when your income is only $89,000 and is eliminated when you reach $109,000 for married filing joint returns. It is less when you are single or head of household. More about IRAs are coming so stay tuned.
