Lynn O'Shaughnessy

In so many ways, the Individual Retirement Account is exquisitely simple. If you can recite your ABC's without hesitating, or even if you can unfold a napkin, you have enough intellectual firepower to open an IRA.

Despite their simplicity, however, IRAs intimidate many Americans. And that's one reason why IRA opportunities have been passed by more times than a dirty truck stop. To be sure, there is $3.7 trillion sitting in IRA accounts today, but nearly half of that money came through rollovers from 401(k) plans. In hopes of drumming up more interest for this retirement wallflower, I'm going to address some of the most stubborn IRA myths. Here goes:

Myth No. 1: The traditional deductible IRA is best, because I can pocket a tax deduction.

Snagging a tax break can be tantalizing, especially at this time of year, but the Roth IRA is a better bet for just about anybody who qualifies. Once you understand how each IRA works, you'll probably come to the same conclusion.

With a traditional deductible IRA, you can happily capture a tax deduction. If you put $4,000 into one of these IRAs and you're in the 15 percent tax bracket, for example, you'd earn a $600 tax deduction. But when you withdraw this money during retirement, you'll pay income taxes on all this loot. And the federal government, impatient with all the years you've hoarded the money, will require that you begin siphoning the account shortly after reaching the age of 70 1/2.

With a Roth, you won't be handed an upfront tax break, but you will be amply rewarded for your delayed gratification. The money grows tax-free, and the government will not force you ever to disturb your Roth stockpile. What's more, if you do eventually tap into the account, you will owe no federal taxes at all. For either of these IRAs, income limitations exist, but the most inclusive IRA is the Roth, which the vast majority of taxpayers will qualify for.

Myth No. 2: If I make too much to contribute to a Roth, it's definitely not worth bothering with an IRA.

Not so fast. It's true that the wealthiest among us have been excluded from the Roth party. But Congress opened the door a crack last year when it passed legislation that will allow rich investors an indirect way to move cash into a Roth.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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