Retirement Planning Common Questions |
Can I set up a traditional IRA?
Answer:
Almost anyone can set up a traditional IRA. The only requirement is that you must have earned income (typically, salary or wages from your job) in order to put money into an IRA. Beyond that, the basic mechanics of setting up an IRA are pretty straightforward. An IRA is typically established with a bank, insurance or investment company, or other financial institution with an initial investment of as little as $50. It's as simple as picking an institution, completing the required paperwork, and making an opening deposit. The only potentially difficult steps are selecting specific investment vehicles to fund your IRA and designating your beneficiary.
In 2006 and 2007, you can contribute a total of $4,000 a year to all the IRAs you own. Married couples may contribute $4,000 per spouse under certain conditions. In addition, if you're age 50 or older, you can make an extra "catch-up" contribution of $1,000 in 2006 and 2007. Your annual contribution can be made as a lump-sum payment or a series of payments, and can be made up until April 15 of the following year.
Although practically anyone with earned income can contribute the full $4,000 a year to an IRA, your ability to deduct contributions will depend on several factors (e.g., your adjusted gross income, your tax filing status, and whether you or your spouse is covered by an employer-sponsored plan). You may be able to deduct all, a portion, or none of your IRA contribution for a given tax year. You may even qualify for a partial tax credit.
Note that this discussion applies only to traditional IRAs. Roth IRAs are subject to special rules of their own.
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Common Questions
- Can I avoid the 10 percent penalty tax for early withdrawals from a traditional IRA?
- Can I convert my traditional IRA funds into a Roth IRA?
- Can I set up a traditional IRA?
- I need money--can I take funds from my IRA?
- It's January, and I forgot to contribute to my IRA. Is it too late?
- Should I withdraw money from my IRA to pay for my child's college tuition?
- What are my options if I inherit an IRA or employer-sponsored plan?
- What are required minimum distributions and how are they calculated?
- What are the rules for IRA contributions?
- What's a premature IRA distribution, and what happens if I make one?
- Can I roll a retirement plan distribution into an IRA?
