Final answer:
The phase-out for contributions to Roth IRAs is determined by the taxpayer's filing status and AGI. While Roth IRAs offer tax-free growth, traditional IRAs are tax-deferred with taxes due upon withdrawal. Income levels dictate how much one can contribute to a Roth IRA.
Step-by-step explanation:
The phase-out for contributions allowed to Roth IRAs is dependent upon the taxpayer's filing status and Adjusted Gross Income (AGI). A Roth IRA allows for tax-free growth, meaning that one owes no tax on the earnings as they accumulate or when they are withdrawn. Unlike a Roth IRA, a traditional IRA is tax-deferred, and taxes are paid on the lump sum upon withdrawal. Contribution limits to Roth IRAs are affected by income levels, with the amount you can contribute decreasing as your AGI increases, eventually reaching a phase-out point where you can no longer contribute. It's important for individuals considering a Roth IRA to be aware of their filing status and AGI when planning their retirement savings.