By beginning your retirement savings program as soon as you possibly can, you gain the advantage of time for your savings to grow tax-deferred for as long as possible. You can even start while you're still a full-time student in school, and begin to build long-term savings habits. While you aren't prohibited from taking a deduction for a contribution to a traditional IRA if you are a full-time student, you must meet other income requirements. Also, if your income is low, you may not be able to take advantage of the deduction.
To contribute to an IRA account and take the corresponding deduction, you must have earned income. Earned income comes from wages or a salary, and can also be self-employment income from any type of business you work in. Interest or investment income, or gifts from parents or other relatives that you use to live on while in school, don't count as earned income.
Income Qualification for IRA Deduction
If you aren't covered by an employer sponsored retirement plan, such as a 401(k), at the time of publication, November 2012, you're eligible to contribute up to the lesser of your earned income or $5,000 to a traditional IRA and take a deduction for this amount. The amount increases to $6,000 if you're age 50 or older. In 2013, the amounts increase by $500. If you or your spouse are covered by an employer-sponsored plan, your deduction for a traditional IRA contribution may be reduced. If you're single, you must have a modified adjusted gross income of less than $59,000 to qualify for the full IRA deduction.
If you're single, the first $5,950 that you earn in income is sheltered from income tax because of your standard deduction. If you make less than $5,950 per year, you won't benefit from an IRA deduction, but you can still contribute the money to a traditional IRA.
The Roth Alternative
If your income is low enough that you wouldn't benefit from a traditional IRA contribution, a Roth IRA contribution is a better alternative. You receive no immediate tax benefit from the Roth IRA, but you do gain the ability to take withdrawals from the Roth IRA tax-free in retirement. In addition, Roth contributions can be withdrawn at any time without tax or penalty.