In life, there are certain things that are beyond indispensable. Like brake lights, hot showers, birthday candles and second chances. And if you're saving for retirement, the Roth Individual Retirement Account belongs on that list.

Among all the competing IRAs, the Roth is the alpha dog. That's because the Roth is more effective than a pit bull at protecting your cash against one of Americans' most feared predators – the Internal Revenue Service. When you invest in a Roth and keep the money there until retirement, taxes become somebody else's problem.

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Tax concerns melt away because what's inside a Roth grows tax-free for your lifetime and beyond. If there is money left in your Roth when you die, your heirs, if they are smart enough to know what a fabulous gift they've inherited, will prevent this tax-free bubble from bursting. What's more, the tax protection doesn't disintegrate if a retiree pulls the cash out. As long as somebody is at least 59 and has kept cash in at least five years, all withdrawals are tax-free.

Of course, the Roth isn't the only IRA you've got. In this beauty contest, the bucktoothed runner-up is the deductible IRA. Unlike the Roth, the deductible IRA provides instant gratification. You're awarded a tax deduction on your income tax return for any contributions you make. How much will depend on the amount you kicked in, as well as your tax bracket.

If you invest $3,000 in a deductible IRA this year and you're in the 15 percent tax bracket, you'd shave $450 off your federal income taxes. This year, by the way, you can put up to $3,000 into a traditional or Roth IRA and, if you're at least 50, you can toss in an additional $500.

If that tax break caught your eye, you may be wondering why you'd want to walk away from free money. Here's your answer: When you start draining your deductible IRA during retirement, you'll be stuck paying income taxes on every withdrawal.

Suppose one saver contributed $3,000 a year for 30 years in a Roth and somebody else did the same thing with a deductible. With the hypothetical accounts each earning 8 percent a year, both investors would end up with more than $359,000. OK class, you won't need a calculator for this next question. If our Roth investor cashed in the account, what's the tax bill? That's right, it would be zilch.

The IRS, however, would attack the deductible IRA account like it was an all-you-can-eat, steak-and-lobster buffet. If our deductible IRA investor had remained in the 15 percent bracket, $150 out of every $1,000 withdrawal would belong to the IRS. And in California, there'd be state tax to pay, too.

The pain would be worse for the more affluent. A guy in the 35 percent tax bracket who cashed out that $359,000 would owe $125,650 in federal taxes. And here's more bad news: the owner of a deductible IRA must begin withdrawals not long after reaching the age of 70. In contrast, a Roth owner never has to touch his stash.

While the case for the Roth is overwhelming, you wouldn't necessarily reach that conclusion if you poured over IRA material that is mass-produced by financial institutions. Reading the literature, you may assume that picking between a Roth and a deductible IRA is as tortuous as deciding which of your children you love the most.

But if you examine how these guys compare the two IRAs, you'll see that their conclusions about Americans' spending and investing habits are borderline delusional.

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Here's the scenario that's often presented in literature. Someone invests $3,000 a year in either a Roth or a deductible IRA. OK, so far. But then those financial brochures make this huge assumption: The person contributing to the deductible IRA puts the tax savings (remember that hypothetical $450 tax break?) into a taxable account and lets it ferment like a French Bordeaux until retirement.

Now, excuse me, but wouldn't people choose a deductible IRA so they could get their grubby hands on the tax break right now? If someone receives a refund, isn't he or she more likely to use this mad money to pay off a credit card, blow it on a weekend trip to San Francisco or buy a PlayStation 2 to shut up a whining kid? If you eliminate the industry's preposterous scenario, the argument for considering a deductible IRA blows up like a cactus on a weapons testing range.

Now that I've hyped the Roth, you should know that not everybody can contribute to one.

If you're a member of the top 1 percent of Americans that we keep hearing are hogging the recent tax breaks, you can stop reading. This is one cushy tax break that you can't exploit. Actually, you can't take full advantage of a Roth IRA if your adjusted gross income exceeds $150,000 for married taxpayers filing jointly and $95,000 for single taxpayers.

You are eligible for a partial contribution if your income is slightly higher. If you can't qualify for a Roth, the deductible IRA won't work either, since the income limitations are lower. For those who've been shut out, the consolation prize is a nondeductible IRA. With a nondeductible IRA, you don't get a front-end tax break and you'll owe taxes on your investment gains when the money's withdrawn. But the cash remains sheltered from taxes as long as it stays inside the account. Hey, it's something.

When people start talking to me about IRAs, too often it becomes clear that their knowledge of IRAs could easily fit inside a peach pit. The tip-off comes when I ask investors how they've invested their IRA. Here's what I've heard many times: "It's in an IRA investment."

An IRA, however, is only a shell. The account is like an empty Easter basket or a church collection plate that hasn't been passed around yet. Once you put money into an IRA account, which you can open at just about any financial institution, you then have to decide how to invest it. And what you choose is just as important as deciding which IRA to select.

Imagine how many excuses a cop has heard from speeding motorists and you'll get some idea of how many investing choices you face. You are free to invest in mutual funds, stocks, bonds, certificates of deposit, money markets and more. It's usually best to choose mutual funds and, of course, my favorite choices are low-cost index funds.

Source: 09-26-2004