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IRA actually stands for Individual Retirement Account. They come in several different types that follow different rules and cater to different people's needs. I have recently started contributing to a Roth IRA and would like to discuss why.

The Tax Payer Relief Act created the Roth IRA in 1997 in order to take it easy on the social security system and to help people plan for their retirement in personal investment rather than relying solely on their employer's 401k program. They encourage the people by allowing certain financial benefits if these IRA accounts are used for retirement planning. What are some of these benefits?

For starters, the Roth IRA contributions are not tax deductible. And, most people would probably consider that a bad thing. But think about this. If you contribute the maximum allowed $5,000 (2008 Maximum for under $100,000 annual) from your income and don't pay taxes on it at time of contribution, then that $5,000 fund is really about a $4,000 fund. On the other hand, if you contribute that same amount to a Roth IRA and don't deduct it from your income tax form, then it is a true $5,000 fund. Which brings me to my next point.

Second, after funds have been in the Roth IRA for 5 years, they can be withdrawn with no penalties or taxation. There are penalties and taxes applied to any withdrawals from a regular IRA before you hit 59 1/2 years old.

This permission for early withdrawal after the five year seasoning period makes it a great source for an emergency fund that everyone needs. So you can save for retirement while simultaneously putting back funds for emergencies like a new roof, or a new car. The allowances for early withdrawal are relatively lax compared to a traditional IRA.

There are a few very strict withdrawal permissions that allow early withdrawal from a traditional IRA. For instance: You can use up to $10k from the account before 59 1/2 years of age for the purchase of a home. But as I mentioned before the rules are very strict. The buyer must be either the IRA holder, their spouse or a child of the holder, and they must have not owned a home in the previous two years. the other allowances follow suit with the strict circumstantial rules.

The Roth IRA suits me and my circumstances. But each person has their own goals and needs. So to find out which IRA is right for you, talk to a financial consultant about the options. Ask plenty of questions so that you can make an educated decision.