| Everyone saves for the rainy day, our parents taught | | | | The maximum you can contribute to your IRA is either |
| us to save money from a youngage so that it is of | | | | $ 3,000 or your taxable compensation for the year, |
| some use at a later stage. Even the taxman says that. | | | | whichever is less. It goes to $3500 if you are 50 or |
| IRA, or Individual Retirement Arrangement, is a | | | | older. If you are uncovered, you can claim the |
| personal savings plan that lets you save up for rainy | | | | complete deductions. If, however, you are covered by |
| days and gives you tax benefits in the form of tax | | | | a valid retirement plan, your IRA deduction can either |
| deductions. All contributions made to this plan are | | | | be reduced or eliminated, depending on the amount of |
| entitled to the IRA tax deduction. This also includes | | | | your Modified Adjusted Gross Income and your filing |
| earnings from these contributions unless they are | | | | status. |
| distributed to you. | | | | If in case you have made any withdrawals, then you |
| 2 basic rules govern the working of IRA. | | | | have to pay tax on the amounts available. And it is |
| The first is the simple IRA. The more traditional way | | | | wholly taxable. |
| which helps for that long retirement plan. Contributions | | | | Roth IRA - Roth IRA is the reverse of the traditional |
| to IRA are exempted unless you receive any kind of | | | | IRA. Contributions that you make to this RA will get |
| distribution. | | | | you no deductions. No taxes on withdrawals or |
| Setting up an IRA is very simple, you need to be less | | | | earnings. Everything else about Roth IRA is like the |
| than 70.5 years of age before you can apply. A | | | | simple IRA. Like the latter it can be either an account |
| taxable income is necessary to avail this. Only salaries, | | | | or an annuity. To be a Roth IRA, the account or |
| commissions, alimony, maintenance or any other | | | | annuity must be designated as a Roth IRA when it is |
| means of income Generated by self constitutes this. | | | | set up. |
| Rental or any other income from property, annuity or | | | | These two basic rules now sum up what you want to |
| deferred compensation does not qualify as taxable | | | | know about taxes and especially the savings aspect. |
| compensation. | | | | |