Hello and welcome back to Money Girls Quick and Dirty Tips for Ritchie Life.

I'm your host, Laura Adams.

Since the New Year is just around the corner, you should know about the new rules that go into effect on January 1st of 2010 concerning Roth IRAs. You may already know that IRA stands for

individual retirement arrangement and was formerly called an individual retirement

account. It's a special account that gives the vast majority of U.S. citizens

the ability to save considerable taxes on the growth of their retirement nest egg.

Starting in 2010, the big change is that everyone will be eligible to convert a traditional IRA into a Roth IRA.

Before we dive into whether a Roth conversion is a smart move for you, let's review the major differences between

traditional and Roth accounts.

With the traditional IRA, you generally don't pay taxes on the money that you put in.

For example, if you earn $100, you can invest $100. You pay taxes

on your income and earnings in the future after you retire and begin to take qualified

distributions from the account.

That gives you an immediate tax break.

You defer paying taxes on income and earnings

until you withdraw money from the account.

So instead of getting taxed on the amount of money you put in the account, you get taxed on the amounts that you eventually take out.

A Roth IRA, on the other hand, has the opposite taxation requirement because you must pay tax on money before you

invest it. Paying taxes up front can be a disadvantage when compared to a

traditional account if it means that you won't invest as much.

For example, let's say you earn $100 and want to contribute it to a Roth IRA.

If you're in the 25% tax bracket, you'd have to pay $25 in taxes before making the contribution.

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