Helpful IRA Tips
Traditional IRA
Q: How do I know if I’m eligible to contribute to a traditional IRA?
A: Any individual who has earned income during the year and is younger than age 70 ½ may contribute (deposit) to an IRA. Whether or not you are eligible for a tax deduction depends on how much income you have earned and whether or not you are an active participant in an employer-sponsored retirement plan.
Q: How do I know if I’m an active participant in an employee-sponsored plan?
A: Your W-2 form will indicate your participation status. However, if you need to know sooner, ask your employer.
Q: If I’m not an active participant in an employer-sponsored plan, are my IRA contributions tax deductible?
A: If neither you nor your spouse is an active participant in an employer-sponsored pension or profit sharing plan, you can deduct 100% of your IRA contributions, regardless of your income level. If only one of you is an active participant, the other can deduct 100% of the contribution, if your combined modified adjusted gross income is less than $150,000.
Q: If I am an active participant, does that mean I can’t deduct my IRA contribution?
A: Your IRA contribution may be completely deductible or partially deductible, depending on your income level.
Q: How much can I contribute to an IRA each year?
A: For the 2005 tax year, as an individual taxpayer, you may contribute all or part of your income up to:
- $4,000 if you are under age 50
- $4,500 if you are age 50 or over
For the 2006 tax year, as an individual taxpayer, you may contribute all or part of your income up to:
- $4,000 if you are under age 50
- $5,000 if you are age 50 or over