An Individual Retirement Account (IRA) is a plan that allows a person to make contributions each year if they meet the contribution requirements. If you are age 50 or older, you can contribute even more to your IRA.
Anyone can contribute to a traditional IRA if he/she has earned income for the year at least equal to the amount of the contribution and are under the age of 70 ½. If a person has a company sponsored retirement plan, there might be limitations on how much can be contributed to a traditional IRA. Depending on income and filing status, there could be a limitation on how much can be deducted from taxes. There is no age limit for contributing to a Roth IRA provided the earned income condition is met. There are phase-out rules in place for how much a highly-paid person can contribute to a Roth IRA.
Annual Contribution Limits for IRAs per Individual
- Tax year 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 income to cover the IRA contributions for both.
All accumulated interest, dividends, and capital gains on a traditional IRA are tax-deferred until the money is withdrawn.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 are tax-free if you meet certain requirements.