Roth IRAs are a terrific tax break, especially for individuals previously shut out of the deductible IRA game because their incomes were too high. Unlike traditional IRAs, Roth contributions are nondeductible, but the earnings build up tax-free and withdrawals are free of federal income tax as long as the account has been open at least five years and you're age 59 1/2 or older.

Eligibility for the Roth is phased out between adjusted gross income (AGI) of $150,000 and $160,000 for joint filers and between $95,000 and $110,000 for singles. If you are eligible, you can contribute up to $2,000 annually or $4,000 for married couples. You can still contribute to a regular IRA, but your total IRA contributions cannot exceed $2,000 per person. You can also convert a traditional deductible or nondeductible IRA into a Roth. The conversion is treated as a taxable distribution from the traditional IRA. For 1998 conversions only, you can spread the resulting income evenly over four years (1998 through 2001). For conversions in later years, you have to take the entire income tax hit in the year you convert. However, the conversion option is only available if your AGI, not including income triggered by the conversion itself, is $100,000 or less.