Each year you can make a contribution to an IRA, if you meet the age and earnings requirements. You can make it any time during the tax year, from January 1 through the date federal income taxes are due for that tax year (usually April 15 of the following year).
An IRA is a tax-deferred savings account that's meant for retirement. There are two main types of IRAs: traditional and Roth. A traditional IRA allows you to deduct your contribution on that year's income tax return. The money grows tax deferred, and you pay taxes on the growth when you withdraw the funds at retirement. You can't deduct contributions to a Roth IRA, but when you withdraw the money at retirement, there are no taxes due, regardless of how much your savings has grown.
Each year, you can contribute up to a maximum set by the Internal Revenue Service (IRS). The maximum as of the time of publication is $5,000 for those under age 50 and $6,000 for those age 50 and older. If you open multiple IRAs for a given tax year, your total contributions must be less than the maximum. You can open your IRA account at any time during the tax year through the federal income tax due date the following April. You can also fund your IRA at any point during that time. Traditional IRAs let you contribute through age 70 1/2. You can contribute to a Roth IRA at any age, as long as you have earned income.
You must make IRA contributions from income you earn. Earned income includes wages and commission. Income from Social Security or an annuity is considered unearned income. You can't contribute more than you've earned in a given tax year. For example, if you had $2,000 in earned income during 2010, the maximum you could contribute to an IRA for 2010 is $2,000.
You can contribute to a traditional IRA regardless of your income. Roth IRAs let you contribute if your income is lower than IRS guidelines. As of the time of publication, if you're married filing jointly, for example, you can make the maximum contribution if your modified adjusted gross income is less than $169,000. If you're single, head of household or married filing separately and living apart from your spouse, you can make a full contribution if your income is less than $107,000. If you have an AGI of $179,000 or more (married filing jointly) or $122,000 or more (single, head of household or married filing separately), you can't make a Roth IRA contribution for that tax year.
- CNNMoney: What's the Difference Between Roth and Traditional IRAs?
- IRS.gov: 2011 IRA Contribution and Deduction Limits
- "Kiplinger"; You Need Earned Income for an IRA; Kimberly Lankford; April 2008
- IRS.gov: 2011 Contribution and Deduction Limits - Amount of Roth IRA Contributions That You Can Make For 2011
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