IRAs,
or individual retirement accounts, are retirement savings accounts
you set up and manage on your own or with the help of your financial
adviser.
You open an IRA by filling out a relatively
simple application provided by the brokerage firm, bank, mutual
fund company, or other financial services company you choose to
be the custodian of your account, and by making an initial contribution.
The only requirement for putting money into
an IRA is having earned income — money you get for work you
do. You qualify whether you work full- or part-time. And you can
add to your IRA even if you’re contributing to a retirement
plan at work, such as a 401(k)
or a 403(b),
or a Keogh
plan if you’re self-employed.
Contribution caps
There’s an annual cap on contributions.
In 2008 the limit is $5,000. Thereafter it will be adjusted for inflation in set increments. You can contribute as much as you want, up to that
cap, but you can’t contribute more than you earn. For
example, if you earn $1,800, that’s how much you can
put in. If you’re over 50, you can also make
an additional catch-up contribution to a cap of $1,000.
Catching up If you’re over 50 and qualify for an IRA, you can add the catch-up contribution each year even if you’ve been contributing the maximum over the years. Or you can take advantage of this benefit to make up for lost time.
