Traditional IRA: A traditional IRA, or Individual Retirement Account, is a tax-deferred retirement savings plan that you establish on your own, separate from any retirement plan that may be offered by your employer. For the year 2010, you’re allowed to contribute up to $5,000 to a traditional IRA; $6,000 if you’re age 50 or older (as long as you’ve earned at least this much income). Subject to certain income restrictions, these contributions to your IRA are tax deductible in the year you make them. Your money is allowed to grow, tax-free, until you withdraw it, at which point you pay taxes on the money. There are penalties for withdrawing money from an IRA before you reach age 59 1/2, unless you meet certain hardship requirements.

Roth IRA: Like a traditional IRA, a Roth IRA is a private retirement savings plan that is separate from any retirement plan offered by your employer. However, unlike a traditional IRA, a Roth IRA is a tax-free Individual Retirement Account. This means that you fund the account with after-tax dollars, but the money in the account grows tax-free and withdrawals from the account are not subject to income tax, provided the account has been open for at least five years and, with some exceptions, as long as you’re age 59 ½ or older when the withdrawals are made. There are restrictions on how much you can contribute each year, and there are penalties for certain types of early withdrawals.

Spousal IRA: A spousal IRA allows a non-wage-earning spouse to have an Individual Retirement Account based on his or her wage-earning spouse’s income. Because both Roth and traditional IRA’s require you to earn at least as much each year as you contribute to the account, a spousal IRA allows a stay-at-home spouse to contribute the full allowable amount to an IRA in any given year, as long as his or her wage earning spouse makes enough to cover the contribution. Once the stay-at-home spouse’s contribution is made to the IRA, that amount belongs to the stay-at-home spouse, no matter the source of the money.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.