Investing Basics
IRAs: Eligibility and Contribution Limits

Before opening an Individual Retirement Account (IRA), check to make sure you are eligible. Also, be sure your total annual contributions do not exceed the annual contribution limit.

Annual Contribution Limit: For all of your Roth and Traditional IRAs,
for tax year 2007, the annual limit is the lesser of 100% of your earned income or $4,000 ($5,000 if age 50 or above). For tax year 2008, these amounts are increased by $1,000.

Traditional IRA

Eligibility Requirements: To be eligible to contribute to a Traditional IRA, you or your spouse must have earned income—wages—and you must be below age 70 ½.

Deductibility Test: Depending on your income and whether you and/or your spouse participates in an employer-sponsored retirement plan, your contribution may not be deductible.

If neither you nor your spouse participates in an employer-sponsored retirement plan, your entire contribution to a Traditional IRA is deductible.

If you participate in an employer-sponsored retirement plan, the deductibility depends on your annual income and tax-filing status. For tax-year 2007, IRA contributions for single filers with an adjusted gross income of $52,000 to $62,000 or below and those married filing jointly with an adjusted gross income of $83,000 to $103,000 or below may be partly or entirely deductible. For tax-year 2008, IRA contributions for single filers with an adjusted gross income of $53,000 to $63,000 or below and those married filing jointly with an adjusted gross income of $85,000 to $105,000 or below may be partly or entirely deductible.

If you do not participate in an employer-sponsored retirement plan but your spouse does, your contribution for tax-year 2007 is phased out if your modified AGI is more than $156,000. In tax-year 2008, the limit is $159,000.

Roth IRA

Eligibility Requirements: To be eligible to make the full contribution to a Roth IRA for tax year 2007, your adjusted gross income must be less than $156,000 (joint filers) or $99,000 (single filers). For tax year 2008, the limits are $159,000 (joint filers) or $101,000 (single filers). If your income is higher, you may be able to make a partial contribution. There is no age restriction.

For more complete information, including a comparison of a Traditional IRA to a Roth IRA, read the downloadable Helpful Tips guide, Building your Retirement Savings.