First, since it's a special case, let's roll the Rollover IRA (Individual Retirement Account) out of the way. Rollover IRAs are of interest mainly if you are retiring or changing jobs. For Example, if you have $25,000 in a 401(k), and leave the employer who sponsored it, you might choose to take a cash distribution. But rolling the 401(k) directly into a Rollover IRA may enable you to avoid the substantial taxes and penalties that could go along with the distribution, and it can also enable you to go right on enjoying tax-deferred earnings. Provided that you don't add money to the Rollover IRA once it has been created, you're also free to "roll back" the account balance into the plan of a new employer.

The question facing most people who want to make their own retirement saving is: "Traditional" or "Roth"? Easy to explain, but a tad trickier to calculate in the individual case.

The "Traditional" IRA is designed as a way to reduce taxable income and earn money tax-deferred. The principle benefit of a Traditional IRA is deferral of taxes on the investment (and investment income) until withdrawals are made. Assuming you have at least $4,000 in taxable compensation or earned income or meet other eligibility requirements, you can contribute to a Traditional IRA up to a limit of $4,000 annually, and the contribution may be tax deductible. Your taxable income for the year may be reduced by the same amount as your total yearly contribution, and you may then have a lower tax bill. When you retire, and start withdrawing money from the Traditional IRA, the withdrawals will count as ordinary taxable income at that time. So you can possibly save money by reducing your tax bill now, you accumulate money in the account tax-deferred and it may be that, when you do pay tax on the withdrawals, your tax rate will be lower than it is currently.

However, if you take withdrawals before the age of 591/2, you'll owe taxes on the amount withdrawn and be assessed an additional 10% penalty. You will also be penalized if you don't start withdrawing money by the age of 701/2.

When it comes to taxes and penalties, everything is more complicated than it looks. There are actually a number of exceptions to the early withdrawal clause. For example, if you need the money because of a disability or to pay medical expenses that are more than 71/2% of your adjusted gross income (AGI), you may be able to use your IRA funds without penalty. But, you'll still pay income tax.

In 1998, the IRA universe got more complicated, and from the viewpoint of many investors, much better. Senator William Roth helped create the "Roth" IRA, which is a bit like a Traditional IRA viewed in a mirror. Again, you can contribute up to $4,000 a year, provided your AGI is within certain limits. Since the contribution isn't tax-deductible, it does not reduce your taxable income now, (if your taxable income is $40,000, the Internal Revenue Service still taxes the full $40,000 even though you put $4,000 out of reach in the IRA). But, and here's the really sweet part, when you retire, withdrawals are generally not taxed as income. So you don't reduce your tax bill now, but both earnings on the account and withdrawals from it are generally completely tax-free.

The rules on eligibility and withdrawal are also different in important ways for a Roth IRA. In general, cash contributions can be withdrawn tax-free at any time. Earnings may be removed tax-free if the five-year holding requirement has been satisfied AND one of the following events has occurred: you reached age 591/2, you are now disabled, you have purchased a home for the first time, or you died. Earnings removed with a non-qualified distribution (not meeting the above criteria) will be subject to a 10% penalty. And there's no requirement that you start withdrawing at age 701/2; indeed, subject to certain income limitations, you can go right on piling contributions in there.

Which IRA is most advantageous for you may depend on a variety of factors, including your current and projected income. The important thing is that with the ShareBuilder "monthly payment IRA" Traditional or Roth you get a simple and effective way to incorporate an IRA investment plan into your monthly budget. Dollar-based investing offers a simple, rational way to turn your retirement into just another regular expense, instead of something you keep intending and failing to start saving for. Remember, there are no fees for opening and maintaining a ShareBuilder IRA or for transferring money in or out of the account.