Chances are your client has probably heard all the fuss that is the rage over Roth IRAs. It does seem that the truth is if they do qualify for one, a Roth is probably in their best interest as opposed to the traditional IRAs, both the nondeductible and tax-deductible sorts. What sets the Roth IRA apart from the others your client asks? Let's take a look.
The first thing your client should be aware of is that if their employer offers a 401K plan with a match, they should always max it out before even considering opening up an IRA. Beyond that, why is a Roth better? First, withdrawals from their Roth IRAs after the age of 59 1/2 are usually not taxed like traditional IRAs are. Taxes are paid on the front end because contributions are made after taxes have been taken out of their salary.
Roth IRAs are also much more flexible than traditional IRS accounts. With a Roth, your client can withdraw contributions, although not gains, for absolutely anything they want. And the withdrawal is penalty and tax-free! Want to put a down payment on a new house or a deposit on that new car they've had their eye on? Pay college tuition, pay off debts, anything they want!
The only problem that lies with Roth IRAs is whether or not your client qualifies. Those who do qualify meet the following criteria:
If your client does qualify for a Roth, they are allowed to make annual contributions of up to $2,000 per person. In addition, if their adjusted gross income does not exceed $100,000, they can also convert money from other IRA accounts into a Roth. In order to convert, they will probably have to pay taxes up front, but over the long term, they will probably wind up making a lot more.