Rule #1: Contributions to a Traditional IRA are Tax-deductible.
In general, you don’t have to pay taxes on contributions you make to a traditional IRA. The tax on both your contributions and the growth in the account is deferred until you make withdrawals at some point in the future.
Rule #2: Contributions to a Roth IRA are not Tax-deductible.
The opposite of Rule #1 for a traditional IRA applies to a Roth IRA. With a Roth, you have to pay tax upfront on the money you contribute to it. However, both your contributions and earnings can be withdrawn tax free when you retire.
Rule #3: Anyone with Earned Income Can Have an IRA
Anyone under the age of 70 ½ who earns a taxable income can open and contribute to a traditional IRA.
Rule #4 – This includes Minors
Your child – regardless of age – can contribute to an IRA provided he or she has earned income from a job. This makes an IRA an excellent savings vehicles for children who, because of their age, are able to take full advantage of time – and the power of compounding.
Rule #5: It also includes Spouses without Earned Income
If you’re married and file a joint tax return and just one of you has compensation, both of you can have an IRA. So an unemployed or stay-at-home spouse can save for retirement with his or her own IRA.
Rule #6: IRAs Cannot be Owned Jointly
It is important to keep in mind, though, that all retirement accounts must be owned by individuals, even if you’re married and file a tax return jointly.
IRA Rule #7: You Can’t Fund an IRA for Someone Else
Each owner of a retirement account must qualify to open up and contribute to an IRA. You’re not allowed to mix funds either, by rolling over money into another person’s retirement account. A parent can’t fund a retirement account on behalf of a child, either.
Rule #8: There’s a Maximum but No Minimum IRA Contribution Requirement
While there is an annual allowable contribution limit, you choose whether you want to contribute to an IRA each year or not. If you don’t make a contribution, traditional and Roth IRAs can stay open indefinitely. The 2018 combined annual contribution limits for Roth and traditional IRAs are: Under age 50: $5,500 (increases to $6,000 for 2019). Age 50 or older: $6,500 (increases to $7,000 for 2019.)
Rule #9: You Can Have More than One IRA.
You can open up and contribute to as many traditional and Roth IRAs as you like. However, your total contributions to all of them can’t exceed your annual allowable limit..
Rule #10: You Can Contribute to Both an IRA and a Workplace Retirement Account.
You can contribute to a retirement plan at work—like a 401(k), 403(b), or 457—and still contribute to an IRA in the same year. Remember, though, if you or your spouse has a workplace retirement plan, the tax deduction for your IRA contributions may be reduced or eliminated, depending on your income.
