A Roth IRA is a personal retirement account, similar to a traditional IRA, but with some important differences.

Unlike a traditional IRA account, contributions to a Roth IRA are not tax deductible. Your contributions do not reduce your taxable income. Roth contributions have an annual contribution limit. For the 2010 tax year, you are allowed to contribute up to $5,000. However, this limit is also includes any contributions to a regular IRA account.

Unlike a traditional retirement account, there is no mandatory distribution age requirement. This means that you can withdraw your contributions (but not your earnings) at any time without penalty. With this type of account all of your earnings are tax free as long as you follow the Roth IRA rules. This differs from the traditional account where your earnings are taxed when they are withdrawn from the account.

Whether you can contribute to a Roth account is determined by your adjusted gross income for the year. For single or head of household tax filers, you must make less than $105,000. You can make a partial contribution if your income is between $105,000 and $120,000. If you file jointly with your spouse the limit for making a full contribution is $166,000 and the partial contribution limit is $177,000. There is no age limit for contributing to your Roth account. You may also continue to this type of account beyond age 70.

Distributions from your Roth plan can not be made until five years after you open the account. Once you reach the five year mark, you can make a penalty-free distribution once you reach age 59 ½. You can also make a penalty-free distribution before you reach age 59 ½ if you meet any of the qualifying reasons: you are purchasing your first home, you are paying educational expenses, you have become disable, you are paying medical expenses or you are rolling over the money into another qualified IRA account. If you take a distribution outside of these guidelines you will be subject to a ten percent penalty as well as income taxes on any earnings (but not contributions) withdrawn.

A Roth IRA is an excellent choice for many people who wish to save towards their retirement, but to get the maximum benefits you must follow the tax rules.