Who Can Open an IRA?
Contributing to an individual retirement account is an excellent way to save and invest for retirement, but not everyone can open and contribute to such a plan. To make an annual IRA contribution, workers must meet income and eligibility guidelines set by the federal government.
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Earned Income
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Individuals can only contribute earned income, such as wages, to an IRA account. That means the effective limit on IRA contributions is your level of compensation in a given year. So if your wages for 2011 were only $4,500, that is the most you can contribute to a Traditional or Roth IRA, even though Internal Revenue Service guidelines allow a larger contribution. Workers cannot use unearned income, like interest or dividends, to fund their IRA accounts.
Roth IRA Income Limits
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The IRS limits the availability of Roth IRA accounts to workers whose incomes are under a certain threshold. For 2011, single filers can make the full Roth IRA contribution if their income is less than $107,000, and a partial contribution if their income falls between $107,000 and $122,000. Married couples can make the full Roth IRA contribution if their combined income is less than $169,000, and a partial contribution if their income is between $169,000 and $179,000.
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Traditional IRA Income Limits
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If you are covered by a retirement plan like a 401k or 403b, you can still contribute to a Traditional IRA and take a tax deduction as long as your income falls within the guidelines set by the IRS. For 2011, single taxpayers with adjusted gross incomes of less than $56,000 can make the full contribution, while those with AGIs between $56,000 and $66,000 can make a partial contribution. Married filers with adjusted gross incomes of less than $90,000 can make the full contribution, while those with combined incomes between $90,000 and $110,000 can make partial contributions.
Contribution Limits
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Workers who are eligible to contribute to either a Traditional or a Roth IRA must abide by the contribution limits the IRS sets. The IRS reviews these contribution limits from time to time and adjusts them as necessary. For 2011, workers can contribute up to $5,000 to either a Roth or a Traditional IRA. Workers who are 50 or older can add an extra $1,000 to their IRA accounts, for a total annual contribution of $6,000.
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References
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