Many people want to open a Roth IRA. There are two steps that you must take to get started. The first step is to verify that your employer's 401k plan will permit a Roth IRA. The 401k plan must permit a Roth IRA as a condition of employment. You cannot plan to open a traditional IRA and then open a Roth IRA account.

Now that you need a Roth IRA, you must determine whether to open one. You do have a choice about whether to invest your own money in a traditional IRAtor whether to roll your money into a qualified plan. If you roll your money into a qualified plan, your money will be tax-free. You may not deduct your contributions to a qualified plan, though, until you have exhausted your contributions. Therefore, your money will be taxed at ordinary income rates when you withdraw it. Also, you will be expected to pay taxes on any earnings and earnings on the earnings.

If you do not roll your money into a qualified plan, the decision of whether to roll your money into a traditional IRA or to a Roth IRA depends on several factors that reflect how you plan to invest your money.

Your Income
Generally speaking, you can only rollover money into a traditional IRA if your income is below a specified amount. For the tax year 2008, the amount is $55,000 or less. That amount was included in the tax law when the law was passed in 1998. Therefore, if your income is above that amount, you cannot roll your money into a traditional IRA.

Your age
Most fund managers recommend that you start withdrawing money from your traditional IRA when you reach age 70 1/2. With this in mind, it is important to note that a child of 30 will usually qualify. However, you may not take money out liquidating a qualified plan account before you reach age 70 1/2 if your required minimum distributions are not more than the amount that you are permitted to withdraw from your IRA. Also, your money may not withdraw from a Roth IRA before age 70 1/2. You, for example, cannot withdraw funds from a Roth unless you turn 5 years old.

Roth.
A Roth IRA is tax-deferred but is still taxable when you take it out next year. The funds inside a Roth IRA grow tax-free. You may withdraw funds at any time from a Roth IRA. This feature comes with a significant tax break. If you are funding a Roth IRA as part of a qualified plan, you may deduct the number of distributions from that qualified plan, up to the extent that you have income from that qualified plan. If you are funding a Roth IRA as part of an exception, you may not deduct any of the amount withheld on a qualified plan if you have discussed with your employer the existence of an exception to the tax-deferred requirement. In either of these cases, you must file an amended tax return with IRS Form 1099-R to get the deductions.