Individual Retirement Accounts (IRAs) are one of the options most people have when it comes to saving for retirement. IRAs include both traditional IRAs, which defer taxes on income, and Roth IRAs, which don't offer the same tax breaks but are available to individuals without the same age limitations as traditional IRAs. There are also other employer sponsored IRAs. In each case, most workers and unemployed individuals are eligible to open and contribute to IRAs.
The major qualification for getting an IRA is having some form of taxable income. Eligible sources of income include taxable investment income, such as stock dividends or interest, unemployment compensation, some workers compensation payments, and pension plan benefits. While most people open IRAs with earned income from work, individuals who don't work can use income from any of these sources to contribute to an IRA.
The income limits for some IRAs are maximum dollar amounts. Individuals who earn more than these limits are ineligible to open or contribute to personal IRAs. Except for individuals who receive very large investment income payments, or receive taxable benefits from other sources, these limits do not affect people who do not work. Almost anyone who is out of work temporarily and receiving income of some form can get an IRA.
In some cases, individuals who do not work can contribute to their spouses' IRAs. This option is available to couples who are married and filing jointly. As of 2011, the IRS allows an unemployed spouse to contribute up to $5,000 each year to an IRA before age 50, and $6,000 each year after age 50. This money can come from an employed spouse's work income, or any other taxable source.
If you earn income but do not work, you may have little need for an IRA. This depends on your source of income. For example, if you don't work because you can live off of interest on your investments, investing in an IRA is unlikely to change your financial situation dramatically, once you begin withdrawing money from the plan. However, deferring taxes by contributing to a traditional IRA can save money if you contribute money now, and withdraw it in the after you stop working -- when you're likely earning less than you are now. I
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