Almost anybody can open an individual retirement arrangement account. The two basic limitations are that you must be under 70 1/2 to open a traditional IRA and you must have taxable income. Contributions to traditional IRAs can be deducted from taxable income in the year they're made, but withdrawals will be taxed as ordinary income. A Roth IRA is funded with money you've paid taxes on, but offers tax benefits after retirement. There's no age limit on Roth IRAs.
Contributions to either type of IRA are limited in 2013 to $5,500, plus another $1,000 in "catch-up" contributions for those age 50 and over. A taxpayer can have both a traditional and a Roth IRA, but the contribution limits are for the combined plans. A spouse also can have a separate IRA, whether or not the spouse has earned income and only one spouse contributes to both.
Tax deductions for a traditional IRA and contributions to a Roth IRA are limited by income. Traditional IRA deductions are also affected by participation in workplace retirement programs. For tax year 2013, married couples filing joint returns are basically unaffected with a combined income below $178,000, although the limit drops to $112,000 if the spouse contributing to a traditional IRA is covered by a workplace plan.
Both types of IRA also have a "phase-out" range for deductions or contributions when allowable amounts are reduced as income goes up. Both deductions and contributions in 2013 are capped at joint incomes of $188,000. Phase-out ranges for a traditional IRA are $95,000 to $115,000 if the contributing spouse has a workplace plan and $178,000 to $188,000 without one. Roth contributions phase out with joint incomes between $178,000 and $188,000.
Single or Separate
Single taxpayers or married ones filing separate returns have much stricter limits. A single filer's Roth limits are $112,000 to $127,000, with a phase-out between or $59,000 to $69,000 for a traditional IRA if the taxpayer has a workplace plan. For a married person covered by a workplace plan and filing a separate return, the contributions cap is $10,000.
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