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Roth IRA

The back-loaded IRA is named after a chief supporter—the late Senator William Roth of Delaware. It’s called back-loaded because the tax benefits come at the end of the line. Contributions are not deductible, but all withdrawals are tax-free, as long as they come after you reach age 591⁄2 and at least five years after January 1st of the year in which you opened up your first Roth account. Contribution limits are the same as for traditional IRAs: $5,500 in 2013, with an extra $1,000 catch-up contribution allowed for those age 50 and older. But there’s a catch: If your income is too high, you can’t contribute to a Roth IRA.

You can also roll over funds from a traditional IRA to a Roth IRA—so that all future earnings would be tax-free rather than simply tax-deferred. This is called a Roth IRA conversion. But to do so, you have to pay tax on the money you move from the old IRA to the Roth. Starting in 2010, there is no income restriction on Roth IRA conversions (for earlier years, Roth conversions are only allowed if AGI is $100,000 or less).