When you say, "IRA," most people assume you are talking about a traditional IRA. A traditional IRA may provide you with a tax deduction if you meet certain requirements. You can fund a traditional IRA with $5,000 in 2010, unless you are 50 or older, in which case you can fund an additional $1,000, for a total with six.
If you are not a participant in your company's retirement plan, or if your company doesn't have a retirement plan, then you can get a tax deduction for this contribution. If you do participate in your company's retirement plan, you can only deduct your IRA if you earn less than the phaseouts. If you are single, you can deduct your IRA if you earn less than $56,000. You get a partial deduction if you earn between $56,000-$66,000. You cannot deduct your IRA contribution if you participate in your company's retirement plan and earn more than $66,000. If you are married and file a joint return, your income phaseout is $89,000-$109,000. If you are married and filing separately (not the IRS' favorite activity), then the phaseout is $0 - $10,000. Yes, I really meant zero.
Tomorrow, we'll look at the rules about when you can take your money out easily and the age you must start taking distributions.
Be prosperous!
Peggy Doviak
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