The Traditional IRA offers tax-deferred growth — which means you do not pay taxes on any earnings in your IRA until you withdraw them. Also, depending on your income level, your contributions to a Traditional IRA may be tax deductible.

How it works:

1. Deferred taxes — A great feature of a Tradional IRA is that you won't pay taxes on any money earned from investments until you withdraw the money from the account. This means that everything you earn stays in the account to potentially continue earning more money over the years. Taxes are deferred until you start withdrawing from the account. But, the more years you leave the money in, the more your money may accumulate and grow.
   
2. Reduced taxes — Chances are you may have less income in retirement than you do now. Lower income will probably put you in a lower tax bracket. So delaying taxes until retirement means you may pay less tax on the money your investments make.
   
3. Tax deduction now — Depending on your current income and situation, contributions to an IRA might be tax-deductible, which would reduce your Adjusted Gross Income (AGI) on your 1040 form.*
   
   

   *AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

If you withdraw money before reaching 59½ you will have to pay a 10% penalty in addition to taxes on any income your investments have generated. This is to discourage people from taking money out of IRAs before retirement. Some exceptions are made if funds are used for things such as a first-time home purchase, education and certain medical expenses. For a full explanation of exceptions please call our dedicated Financial Advisors at 1-866-218-6142.

The Roth IRA is a type of IRA which allows you to contribute after-tax dollars. Eligibility for the Roth IRA depends on income. Go to the "Which IRA is Right For You" tab to learn more. The Roth IRA is best suited for people who plan to have a higher income closer to retirement. Money in a Roth IRA grows tax-free and no federal tax is paid when the money is withdrawn.

How it works:

Tax-free withdrawals — Once you reach age 59½ and have had your Roth IRA for at least five years, you can make withdrawals of whatever size you want, whenever you want. And not pay taxes on any of it, because the account was originally funded with the taxable income. Contributions to a Roth IRA may be withdrawn at any time without taxes or penalty.

If you currently have a Traditional IRA but like the idea of a Roth IRA and want to convert, you can. There are two requirements:

1. Your modified adjusted gross income (AGI) must be less than $95,000 or $110,000 for partial contribution as a single filer, and less than $150,000 or $180,000 for partial contribution, if filing jointly. Unless you wait until the year 2010 when Roth IRA requirements are scheduled to change, including no income limit.
2. You must pay income tax on the full taxable amount of the account being converted.

If you have any questions about opening a Rollover IRA, speak to one of our Financial Advisors at 1-866-218-6142, Monday-Friday, 8:00 a.m. - 6:00 p.m. (ET).

If you've changed jobs — or retired — and left assets in a former employer's retirement plan, consider rolling them into a Rollover IRA. It's a smart choice that consolidates all your investments in one, easily accessible place. And helps you:

• See the big picture. With all your investments on one statement, it's easier to determine whether your choices still meet your needs. It also helps you to spot weaknesses such as overlapping investment goals.

• Simplify account management. With only one account, there's only one relationship to manage. And only one company to deal with when you have questions or concerns.

• Enjoy potential savings. You may be paying more than you think to maintain multiple IRAs and 401(k)s. Review your account costs and compare them to the fee for a single Rollover IRA. The savings may really add up.

• Avoid tax penalties. There are no tax penalties associated with consolidation when the money in your tax-advantaged accounts is moved directly to your rollover IRA (assuming you don't have an outstanding loan on an employer-sponsored retirement plan).

  

If you have any questions about opening a Rollover IRA, speak to one of our Financial Advisors at 1-866-218-6142, Monday-Friday, 8:00 a.m. - 6:00 p.m. (ET).

If you are a small business owner or a self-employed individual with few or no employees and want to maximize your retirement investing potential, consider a Simplified Employee Pension (SEP) IRA. This plan is easy to establish and administer.

Call a Financial Advisor at AARP Financial for details on the SEP IRA features and instructions on how to establish one. Call 1-866-218-6142, Monday - Friday, 8:00am - 6:00pm EST.

Which IRA is right for you? The best way to find out is to talk to one of our Financial Advisors by calling 1-866-218-6142, Monday-Friday, 8:00 a.m. - 6:00 p.m. (ET). You may also review this chart for a better understanding of how the Traditional and Roth IRA's compare, and which may be better for your situation.

Traditional IRA or Roth IRA. It all depends on your situation.

If you have any questions about opening a Rollover IRA, speak to one of our Financial Advisors at 1-866-218-6142, Monday-Friday, 8:00 a.m. - 6:00 p.m. (ET).