Roth IRA

Named for Delaware Senator William Roth, a Roth IRA is an individual retirement plan that bears many similarities to a Traditional IRA. The biggest distinction between the two is how they’re taxed.

Traditional IRA contributions are generally made with pretax dollars: you pay when you withdraw the money from the account during retirement. Conversely, Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible (although you may be able to take a Saver's Tax Credit of 10-to-50% of the contribution, depending on your income and life situation). Once you start withdrawing funds, qualified distributions are tax-free.