There are three kinds of IRAs: traditional
deductible, traditional non-deductible, and
Roth
IRAs.
While they all have unique characteristics,
they also share some similarities:
You can contribute only earned income,
which means that any money you're paid from a full-time
job, part-time job, or occasional freelancing assignments
can go in your IRA.
In 2008,
you can contribute up to $5,000 to an IRA. If you're 50
or older you can make an additional catch-up contribution
of $1,000. If your income was less than
the contribution limit, however, you're
only able to contribute as much as you earned.
You're
not allowed to withdraw money from a traditional
IRA until you turn 59 1/2. You might owe a penalty
in addition to the taxes due if you remove the money
before then. You can, however, withdraw any contribution
you make to a Roth IRA, though you generally can't
withdraw earnings without penality until you turn
59 1/2.
There are some exceptions to the early withdrawal rules for IRAs. You can take money out without penalty if you use it to buy your first home or to pay for educational expenses. These exceptions make IRAs even more attractive for young investors.
