Studies show that many Americans are not financially prepared for retirement. In case you or someone you know falls within this group, here is some basic information regarding IRAs and Roth IRAs which may help in becoming better prepared.

What is an IRA (Individual Retirement Account)? An IRA is nothing more than a savings account used to save for retirement. It has certain tax advantages. There are two types of IRAs. A traditional IRA and a Roth IRA.

Can an individual have both a traditional IRA and a Roth IRA? Yes.

Can an individual have an IRA or Roth IRA even if they have a retirement plan through their employer or as a self-employed person? Yes. You can have an IRA or a Roth IRA even if you are covered by a retirement plan. However, the deduction for IRA contributions may be limited.

Is there an age limit on when a traditional IRA can be opened and contributions made? You can open a traditional IRA and make contributions so long as you have taxable compensation and will not reach the age of 70½ by the end of the year in which the IRA is opened or the contribution is made.

Is there an age limit on when a Roth IRA can be opened and contributions made? There is no age limit for a Roth IRA. It can be opened and contributions made regardless of your age.

Is there a limit on how much can be contributed to a traditional IRA? Yes. The total amount that can be contributed to a traditional IRA is $5,500 ($6,500 if you are 50 or older by the end of the year) so long as you have earned income of at least $5,500 ($6,500).

Is there a limit on how much can be contributed to a Roth IRA? The total amount that may be contributed to a Roth IRA is $5,500 ($6,500 if you are 50 or older by the end of the year) so long as you have earned income of at least $5,500 ($6,500). However, the actual amount you can contribute depends on your filing status, the amount of your adjusted gross income and whether you have made contributions to another IRA.

Can contributions be made to both a traditional IRA and a Roth IRA during the same tax year? Assuming your contributions to the Roth IRA are not subject to statutory limits, you can contribute to both a traditional and Roth IRA during the same year. However, the maximum contribution allowed is a total of $5,500 ($6,500).

Are contributions to a traditional IRA deductible for income tax purposes? Contributions may be fully tax deductible, partially tax deductible or not deductible at all. The determination depends on whether you are covered by an employer retirement plan, your filing status, your adjusted gross income and whether you receive social security benefits.

Are contributions to a Roth IRA deductible for income tax purposes? Contributions made to a Roth IRA are never deductible.

Can contributions be made to a traditional IRA even though it is determined to be non-deductible? Yes. However, there are tax forms which must be filed if you make non-deductible contributions to your traditional IRA. The form must be filed even if you are not required to file an income tax return. Failure to file will result in a penalty.

Is there a deadline for making contributions to IRAs? Yes. The deadline for making contributions to both types of IRAs for a tax year must be made by April 15 of the following year. Hence, there is still time for making contributions for 2016.

What happens if a withdrawal is made from a traditional IRA? If you withdraw from your IRA prior to reaching the age of 59½ you will be subject to a 10% penalty for early withdrawal. There are some exceptions to this penalty. In addition, the earnings on the IRA and the contributions you deducted are subject to income tax upon withdrawal.

What happens if a withdrawal is made from a Roth IRA?  You may withdraw your contributions at any time without penalty or income tax. If you withdraw earnings prior to the age of 59½ and meeting a 5 year holding period, a 10% early withdrawal penalty is imposed. There are some exceptions to this penalty.

Must distributions be made from a traditional IRA? Yes, required minimum distributions must begin by April 1 of the year following the year in which you turn 70½. After this initial distribution subsequent required annual minimum distributions must be made by December 31.

Must distributions be made from a Roth IRA? There are no required minimum distributions from a Roth IRA. Please note that IRAs and Roth IRAs are only one of the many options available in planning for retirement.

Please note that IRAs and Roth IRAs are only one of the many options available when  planning for retirement. Whether these options, or others, are right for you is something that should be discussed with a professional.