Tips In Determining IRA Contribution Eligibility

The IRA or Individual Retirement Account is a viable investment tool for many people; among its benefits are tax deductible contributions and tax sheltered growth for your retirement savings. Before you avail of an IRA, there are requirements for IRA contribution eligibility that must be considered.

IRA contribution eligibility is dependent on what type of IRA account you choose. However one common eligibility denominator among many IRA, either the traditional or Roth type, Simple or 401(K) is the presence of an earned income or compensation.

IRA contribution eligibility means the person has an eligible compensation and without it you cannot be considered as an eligible IRA contributor and is a ground for the Internal Revenue Service to assess appropriate penalties on your contributions.

For the purpose of IRA contribution eligibility an eligible compensation will include anything you earned as an employee that includes:

• Salaries

• Wages

• Tips

• Bonuses

• commissions you received as percentage of sales

• taxable alimony

• separate maintenance payment under a decree of divorce

• separation maintenance

If you are a student and receiving allowances from your parents and you wish to contribute a part of your allowances to an IRA, would it be possible? The answer is no. Unless you are a part-time employee, the compensation you received can be part of your contributions and limited only by how much you earn.

If you are sole business proprietor or a partner your eligible compensation is based on your net earnings from your trade or business, reduced by contributions to any adopted employer-sponsored program and any deductions that are allowed for 50% of your self-employment taxes.

However eligible compensation for IRA contribution eligibility purposes does not include any interests, dividends, pensions, annuity, profits and earnings from property investments that you received or any amount you excluded from your income.

Any married unemployed individual, not earning eligible compensation cannot contribute to an IRA, but if the individual’s spouse is earning compensation and eligible to contribute, the couple can file a joint tax return in order for the individual to be eligible to contribute.

For SIMPLE IRA, you must be an employee of a business which has an approved employer-sponsored SIMPLE IRA plan for its employees and that business is eligible for SIMPLE IRA that means its total work force must be less than 100 employees.

One aspect of IRA contribution eligibility for ROTH IRA is the income a person earns. Your income must fall within the fixed range of your Modified Adjusted Gross Income or MAGI. If your MAGI overshoots a particular fixed level either there will be a reduction of allowed contributions or no contributions would be allowed at all.

Another important facet of IRA contribution eligibility is the age requirement. However only a traditional IRA requires that those who are already 70.5 years during the calendar year he took an IRA will no longer be eligible to contribute.

Other IRAs do not limit the age of the contributors and practically anyone can contribute to an IRA. However catch-up contributions are applied to those 50 years and above.

For the purpose of IRA contribution eligibility for the SIMPLE IRA, an employer can contribute to the IRA of an employee who has just turned 70.5 years old. If you possess all the basic requirements for IRA contribution eligibility then you can check out the many available IRA offered.

Ira Contribution