With the dubious future of social security funds and the rising cost of living, saving for retirement has become a personal priority for Americans who can no longer rely on the government to finance their golden years.

The individual retirement account or IRAs has become a popular solution for consumers because of the inherent tax benefits. Employers can set up IRAs for employees, and married taxpayers can set up IRAs for spouses. Also, IRAs can be inherited from family members. A Roth IRA offers specific tax benefits which can be further understood once you are able to discern a few simple terms. A contribution refers to the amount of money you invest in the Roth IRA whereas earnings represent the money you earn on the investment.

An heir is the person designated to receive your property upon your death and profit is the amount of money you make as a result of your investment.

The biggest difference between a Roth IRA and a traditional savings account is that because the Roth IRA is intended to support retirement it is much more aggressive and aims for a higher return. The concept behind the Roth IRA is to generate as much profit as possible with each contribution.

The profit from the Roth IRA is reinvested into the account until its maturity date. Another significant difference between a Roth IRA and other types of investment accounts is that contributions to a Roth IRA are already taxed once, so you don't have to pay taxes on the earnings when you withdrawal the funds. This is different from other types of IRAs, 401(k), or 403(b) which require you to pay taxes upon withdraw.

Also, Roth IRAs allow the contributor to withdraw funds before the maturity date without penalty with some conditions. Another type of Roth account, known as the Roth 401(k) caters to employees who prefer to receive a tax break upon retirement instead of getting a tax when they make regular contributions. As its name implies, the Roth 401(k) combines features of a traditional 401(k) with those of a Roth IRA.

For example, with a Roth 401 (k) an employee can make contributions through payroll deductions. But similar to a Roth IRA, contributions are made after taxes. The withdrawals are tax-free and penalty free after age 59 1/2 if the employee has maintained the account for five years or more.

No matter what type of retirement solution you choose, these fluctuating economic times have made saving for retirement a necessity rather than a luxury. Discuss your personal needs with a banker to determine how to best leverage your tax-saving and investment strategies.