Traditional IRA: You can contribute up to $2,000 to an IRA for 2001, as long as you have at least that much earned income. For 2002, the contribution limit increases to $3,000 ($3,500 for those 50 and over).
If a traditional IRA is your only retirement plan, you'll receive a tax deduction for your entire contribution. But if you're also covered by a retirement plan at work, your contribution may be only partly deductible.
Contributions and earnings grow tax-deferred until withdrawn. Then you'll owe tax on the earnings and any deductible contributions at your regular income tax rate. With traditional IRAs, you're required to start withdrawing money the year after you turn 70. If you withdraw money before you turn age 59, you'll generally have to pay a 10 percent penalty.
Roth IRA: Roth contributions are not deductible, but you won't pay tax on your retirement funds if you follow the rules. Higher income individuals can't contribute to Roth IRAs.
Spousal IRA: In addition to your own IRA, you can contribute to an IRA on behalf of your nonworking spouse.
Whether you choose a traditional or a Roth IRA, you must generally make your 2001 contribution by April 15. Of course the earlier in the year you contribute, the more growth potential you'll have.
<> Tax Tips is provided by Joe Buckley, a certified public accountant in Homer. He can be reached at 235-6711.