And which one is right for you?

An IRA or Individual Retirement Account is a plan that allows you to contribute up to $3000 per year. If you are 50 or older, you can contribute even more to your IRA.

Anyone can contribute to an IRA if they have earned income for the year at least equal to the amount of the contribution. The maximum contribution for 2004 is $3000 and will rise to $5000 by 2008. Those who reached 50 years of age by the end of 2002 can make additional "catch up" contributions of $500 through 2005 and $1000 for 2006 thereafter.

Annual Contribution Limits for IRAs per Individual

·          Tax year 2005, $4000 for those under 50 and $4500 for those 50 and over

·          Tax years 2006 - 2007, $4000 for those under 50 and $5000 for those 50 and over

·          Tax year 2008, $5000 for those under 50 and $6000 for those 50 and over

Married couples can each contribute to an IRA even if only one had one for the year if the working spouse earns enough to cover the IRA contributions for both.

There are two common types of IRAs, the traditional IRA and the Roth IRA. All accumulated interest, dividends, and capital gains on a traditional IRA are tax-deferred until the money is withdrawn. All accumulated interest, dividends, and capital gains on a Roth IRA are tax-free if you meet certain requirements.
 

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