An IRA or
Individual Retirement Account is a plan that
allows you to contribute up to $3000 per year. If you are 50 or older, you can
contribute even more to your IRA.
Anyone can contribute to an IRA if they have
earned income for the year at least equal to the amount of the contribution.
The maximum contribution for 2003 is $3000 and will rise to $5000 by 2008.
Those who have reached 50 years of age by the end of 2002 can make additional
"catch up" contributions of $500 through 2005 and $1000 for 2006 thereafter.
Annual Contribution Limits for IRAs per Individual
Tax years 2002 - 2004, $3000 for those under 50 and $3500 for those 50 and over
Tax year 2005, $4000 for those under 50 and $4500 for those 50 and over
Tax years 2006 - 2007, $4000 for those under 50 and $5000 for those 50 and over
Tax year 2008, $5000 for those under 50 and $6000 for those 50 and over
Married couples can each contribute to an IRA even if only one had an
earned income for the year if the
working spouse earns enough to cover the IRA contributions for both.
There are two types of IRAs, the
traditional IRA
and the Roth IRA.
All accumulated interest, dividends,
and capital gains on a traditional IRA are tax-deferred until the money is withdrawn.
All accumulated
interest,
dividends, and
capital gains on a Roth IRA is
tax-free if you meet certain
requirements.
President Bush recently presented a proposal to give us higher contribution rates
on our retirement savings while making the rules simpler. He proposes that Roth and traditional
IRAs be replaced by a single Retirement Savings Account. With this RSA, the contributions are
not tax-deductible but the earnings grow tax-free. The contribution limit will be raised from
$3000 to $7500. He proposes to remove the age or income restrictions and to lower the age to withdraw without
penalty from 59 1/2 to 58. You can read the press release from the Office of Public Affairs
here.
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