Should I Open an IRA?
EligibilityTo contribute to an IRA, you must be under age 70½ at the end of the tax year and you—or your spouse, if you file a joint return—must have earned income, such as wages, salaries, commissions, tips, bonuses, or income from self-employment.
If you work, but your spouse is not employed, he or she may establish his or her own IRA, subject to IRS guidelines.
Tax TreatmentThe money that you contribute to an IRA may be fully or partially tax deductible—and the portion that is tax deductible is not taxed until withdrawal. If you or your spouse participates in a qualified retirement plan at any time during the year, your IRA contributions may not be fully deductible. An IRA’s investment earnings are not taxed until withdrawal.
When you withdraw money from your IRA, it will be taxed as ordinary income at your current tax rate. Any withdrawals you make before reaching age 59½ may be subject to a 10% federal income tax penalty. Generally, you must begin taking withdrawals of your IRA money by the April 1st following the year in which you reach age 70½—although your plan may require that you begin your withdrawals earlier.
The maximum amount you can contribute to an IRA and Roth IRA combined, for 2012 is $5,000 or your taxable compensation for the year—whichever is less. You may contribute up to $6,000 if you are 50 or older by December 31.