Setting Up an IRA
By: Source: AARP.org Date Posted: 2005-03-20 12:09:04
It's easy to open an Individual Retirement Account (IRA). All you do is complete some simple paperwork for the IRS, and make a financial contribution. You'll also need to follow some important rules so you don't get stuck paying tax penalties.
The financial institution that administers your IRA will keep track of the contributions you make. You can open your IRA at a brokerage house, bank, or savings and loan association. Your credit union or mutual fund can also administer your account.
What You Should Know
Maximum Contribution
All IRA contributions must come from your earned income. This includes your wages, salary, tips, and bonuses. Up until 2001, you could contribute only $2,000 each year to an IRA. Beginning in 2002, however, you can begin saving more money for retirement each year.
Congress has approved new IRA contribution limits for all taxpayers through 2010. In addition, workers who are at least 50 years old can put a little extra money into their IRAs starting in 2002. If you are 50 or older, you can contribute $500 more than the maximum contribution to an IRA account each year between 2002 and 2005. From 2006-2010, workers who are 50+ can contribute $1,000 more than the maximum contribution each year from 2006 to 2010.
Here's a look at IRA maximum contributions for the next few years:
| Tax Year | Maximum Contribution for those younger than 50 | Maximum Contribution for those who are 50 and older |
| 2001 | $2,000 | $2,000 |
| 2002-2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
| 2009 | Indexed for inflation | $1,000 more than the maximum |
| 2010 | Indexed for inflation | $1,000 more than the maximum |
Unemployed Spouses
If both you and your spouse are employed, you can each contribute the maximum amount to your own IRA each year. If only one of you is employed, consider setting up a regular IRA for the working spouse and a spousal account for the non-working spouse.
Making Contributions
You don't have to deposit the same amount of money in your IRA each year. And, you can make contributions to more than one IRA. However, each person's total IRA contribution can't be more than the maximum contribution for that year.
For More Information
Internal Revenue Service
It's best to go to the source to find out how the Internal Revenue Service (IRS) regulations affect your ability to save through a Traditional or Roth IRA. Read IRS Publication 590: Individual Retirement Arrangements. You can order the publication by calling 800-829-3676 or you can read it online at the IRS Web site.
URL: http://www.irs.gov
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