Traditional IRA vs. Roth IRA

Workplace-sponsored retirement accounts aren't the only way to save. You can also stash money in Individual Retirement Accounts, or IRAs.

IRAs boast rich tax benefits that give savings an extra edge to compound. The tax benefits depend on the IRA you select -- a traditional or Roth IRA.

Annual contributions to both accounts are the same in 2015 as in 2014 -- up to $5,500 per person, or $6,500 for individuals who are 50 or older.

That said, some experts say the Roth IRA may be the better choice for most individuals because they offer potentially greater tax breaks and more flexibility in terms of funding and withdrawing funds.

"I do like the Roth over the traditional IRA for a number of reasons," says Rick Meigs, president of 401kHelpCenter.com. "I like the concept of having your money tax-free forever. In a Roth IRA, you don't have to take mandatory withdrawals at 70 1/2 and you can keep contributing to it."

Roth IRA contributions are funded with after-tax earnings. However, earnings grow tax-free and can be withdrawn tax-free, too, as long as the account is open for five years and you're age 59 1/2 or older.

Meigs notes that Roth earnings never have to be withdrawn, and you can contribute to a Roth for as long as you like. That's a great help for those who plan to work well past traditional retirement years. On the other hand, withdraw earnings before 59 1/2 and you'll generally pay a 10 percent penalty.

However, you may earn too much to fund a Roth, because they're only available to individuals whose modified adjusted gross income doesn't exceed a maximum of $131,000 in 2015. For married couples filing a joint tax return, eligibility requirements top out at $193,000.

If your income disqualifies you from funding a Roth, consider the traditional IRA, which offers its own set of perks.

With a traditional IRA, you may be able to claim a full or partial income-tax deduction for your contributions, as long as you don't have access to a retirement plan at work, such as a 401(k), and if your income doesn't exceed certain limits. For single filers, that's a maximum of $61,000 to $71,000, or $98,000 to $118,000 for married couples filing a joint return. If your employer does not offer a retirement plan, you can get the full tax deduction for traditional IRA contributions regardless of your income.

Even if you can't claim any tax breaks from your traditional IRA, you can make nondeductible contributions to a traditional IRA. And, since 2010, you have the option to convert a traditional IRA to a Roth IRA, regardless of your income.

Either way, the traditional IRA lets earnings grow tax-deferred, so you postpone paying income taxes until assets are taken out of the account. That has to begin by the time you're 70 1/2 or you'll face penalties for not taking so-called required minimum distributions. That's also the age when you're prohibited from making additional contributions to the traditional IRA.

Updated: Nov. 14, 2014