Does T.M. Need a Roth?

In the letter shown to the left from the 17 year-old T. M., he discusses putting $2000 into an IRA. The Taxpayer Relief Act of 1997 created new investment IRAs for T. M. and others. As a result of this new law, T. M. is now faced with more choices of IRA investing.

Roth is the hot new name in IRAs. T. M. can choose between a traditional deductible IRA and a Roth IRA. What do these two terms mean? (See the HiMAP Pull-Out Section, "Comparing Taxed, Tax Deferred, and Tax Sheltered Investments," Consortium, Summer 1994, for discussion of more types of IRAs.)