THE ROTH IRA created in the 1997 budget bill is the most flexible IRA yet. You can use it for college, home down payments, expenses related to a disability or any darn thing you feel like -- once you?ve had the account open for five years. Too bad everyone isn?t eligible to open one.

Unlike traditional IRAs (both tax-deductible and nondeductible), withdrawals from Roth IRAs are not taxed. You pay your taxes on the front end by contributing after-tax dollars. So Roth IRAs enable savers who remain in the same income tax bracket at retirement to accumulate more money than even tax-deductible IRAs do. (See the applet above.)

Secondly, Roth IRAs are more liberal with withdrawals. You can take out any amount of money for a first-time home purchase or expenses incurred because of a disability. (Traditional IRAs limit penalty-free withdrawals to $10,000 for either first-time home or college costs.) After five years, you can withdraw your contributions from a Roth IRA for any reason you please. And, like other IRAs, withdrawals after the age of 59 1/2 are unlimited as long as you have had the account open for five years.

Who is eligible for a Roth IRA? Joint filers with adjusted gross income (before IRA contributions) below $160,000, and individuals with adjusted gross income below $110,000. (Though eligible contributions start to phase out at $150,000 for joint filers and $95,000 for individuals.)

The Roth IRA allows annual contributions of $2,000 per person. But taxpayers with adjusted gross incomes under $100,000 (married or single) can also roll over assets from their other IRA accounts into a Roth. You?ll pay income tax on the rollover, but not on withdrawals, which would then be governed by the more liberal Roth IRA rules.

So, for most taxpayers a Roth IRA is a better deal than a traditional IRA. But remember, if your employer matches your 401(k) contributions, you should max out that account before establishing an IRA.

IRA TABLE HEADLINE HERE
TAX-DEDUCTIBLE
IRA
ROTH IRA NONDEDUCTIBLE
IRA
WHO'S ELIGIBLE:
In 1998, individuals with modified adjusted income of less than $30,000 and couples with modified adjusted income of less than $50,000*. Eligibility phases out between $95,000 and $110,000 in modified adjusted gross income for individuals, and $150,000 and $160,000 for couples. Everyone
ANNUAL CONTRIBUTION:
$2,000 tax-deductible $2,000 not tax-deductible $2,000 not tax-deductible
WITHDRAWALS:
Withdrawals taxed as income. Penalty-free withdrawals permitted before age 59 1/2 for first-time home expenses up to $10,000 or educational expenses. Tax -free and penalty-free withdrawals after five years if you are 59 1/2 or in the following circumstances: death, disability or for first-time home expenses up to $10,000. Penalty-free, but not tax-free withdrawals permitted before age 59 1/2 for educational expenses. Penalty-free withdrawals of any contributions or conversions (not gains) after five years. Withdrawals taxed as income. Penalty-free withdrawals permitted before age 59 1/2 for first-time home expenses up to $10,000 or educational expenses.
ACCOUNT VALUE AFTER 1O YEARS**:
$29,573 $31,291 $28,130
Source: Arthur Andersen, Merrill Lynch Private Client Marketing.
*These income caps will gradually increase to $50,000 for singles by 2005 and $80,000 for couples by 2007.
**$2,000 annual contributions at 8% growth rate. Assumes that contributions are made on the first day of each year and that withdrawals are taken at the end of the contribution period. Assumes a constant 28% tax rate throughout the projection period and assigns a constant 5% after-tax growth rate to the value of any tax deductions.