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IRA Basics

IRA (Individual Retirement Account) provides the opportunity to investors to make annual contributions. In order to be eligible to allocate money for an IRA account, you should meet several requirements. IRAs are especially beneficial to investors that are above the age of 50.

IRA Eligibility

In order to be eligible for IRA contributions the amount of the income you have earned should be at least the amount of the contributions you are willing to make. A second requirement you should meet is that you should be under the age of 70 ½. The latter requirement applies for traditional IRAs. An exception is made about Roth IRAs where no limit is established regarding the age of the investor.

IRA Limits

The provided limits apply for individuals and are for a period of one year.

Tax Period Under the Age of 50 Over the Age of 50
2006 - 2007 $4, 000 $5,000
2008 $5,000 $6,000

In the case of married couples, where only one of them works, the latter can contribute for his/her unemployed spouse under the requirement of having enough money to cover the desired contribution to the IRA.

The good news is that profits (dividends, capital gains, interest) are exempt from taxes. The gains are subject to taxation only after the money is withdrawn from the IRA account. Additionally, if you have invested in a Roth IRA, the interest, capital gains and dividends you have acquired throughout the holding period are tax deferred.

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