At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
Individual retirement accounts (IRAs) are one of the more popular types of retirement planning strategies in the United States. As with most retirement options, there are a few restrictions on the establishment of an IRA, especially in regard to who is eligible for this type of account and the limits on contributions per calendar year. Depending on the type of account involved, factors such as age, martial status and the amount of earned income per year can affect IRA eligibility, especially with plans offered through an employer.
In terms of IRA eligibility, some forms of the account have no specific age requirement for the establishment of the plan. As long as the individual in question does have some sort of earned income that is verifiable by means of a W-2 or a 1099 form, it is possible to establish and contribute up to a certain amount in that account annually. With some IRA plans, individuals over the age of 50 may be allowed to contribute more income into the plan each year, a point that may be especially important to someone who is beginning to prepare for retirement later in his or her career.
Martial status may also have some impact on IRA eligibility in terms of how much both partners may contribute annually to a joint account. Again, this is often determined by the amount of income generated by the couple, with restrictions on the total contributions based on that combined annual income. Since those limits are subject to change annually, it is important to consult a tax or investment professional regularly to determine if it is permitted to contribute more than in years past.
When it comes to income level in general, there are typically tables that help investors identify the maximum amount that can be contributed to the plan each year. With a Roth IRA, the modified adjusted gross income (MAGI) will be employed to determine your eligibility, and how much you can contribute. By using current tables, it is possible to identify what percentage of the modified adjusted gross income is eligible for a contribution in any given year. The individual or couple can then contribute up to that amount.
IRA eligibility for different types of individual retirement accounts does vary slightly, based on the terms and provisions of each type of IRA. Before determining which IRA is the best option, it is important to investigate the benefits of each one, the specific and current terms for eligibility, and then decide how to proceed. Taking the time to do so will make it easier to effectively plan for retirement, manage an IRA rollover when and as necessary, and generally secure a more stable financial future for the retirement years.