Eligibility

• To contribute to either type of IRA, you must have taxable compensation that is at least equal to the amount of your contribution. However, for you to contribute to a Roth IRA or to claim the full tax deduction on your contributions to a traditional IRA, your income cannot exceed a certain amount, which the IRS determines each year. To contribute to a traditional IRA, you cannot be older than 70 1/2. Roth IRAs don't have an age limit for contributions.
  
  

Contributions and Investments

• The annual contribution limit for IRAs is adjusted for inflation and is per person, so if you are married, you and your spouse can each contribute up to the limit. IRAs can be self-directed or managed solely by a financial institution. You can put your money in many types of investments, including certificates of deposit, bonds, mutual funds, stocks and even real estate.
  
  

Tax Benefits

• Both types of IRAs are tax-sheltered accounts, meaning that the returns generated by the investments are not subject to taxes as long as the money remains in the account. In addition, a traditional IRA allows you to deduct all or part of your contributions from your income in the year that you contribute the money. However, when you withdraw the money at retirement, you must pay taxes on it. A Roth IRA doesn't offer a tax deduction on contributions, but it allows you to withdraw the money tax free in retirement.
  
  

Distributions

• The money you contribute to an IRA cannot be withdrawn until you reach 59 1/2 years old or meet certain requirements. Otherwise, you may have to pay taxes and a 10 percent early withdrawal penalty on the amount you withdraw. With a traditional IRA, you must start taking distributions from the account by age 70 1/2. A Roth IRA does not require distributions as long as the original account holder is alive.
  
  

Hardship Distributions

• The IRS provides for several limited circumstances when an account holder can make early withdrawals from an IRA without penalty. You can cover $10,000 toward the purchase of your first home, medical expenses that exceed 7.5 percent of your adjusted gross income, or an unlimited amount for higher-education tuition expenses. You can also access your funds if you suffer a disability that will prevent you from working for the rest of your life. A deceased account holder's beneficiaries can withdraw the money immediately.