You can contribute up to $5,500 a year, less any contributions to 401(k)s and 403(b)s, if you earn that much from work. If over 50, you can contribute an additional $1,000. If over 70½, you can’t contribute.
- Contributions are only partially deductible if your “adjusted gross income” in 2014 is over $60,000 if single, or $96,000 if married and filing jointly. They’re not deductible at all if your “adjusted gross income” is over $70,000 or $116,000. (These limits change every year.)
Before age 59 ½, withdrawals get hit with a 10% “penalty tax” except:
- Up to $10,000 for a first-time home purchase.
- “Qualified” college expenses for you, your children, or grandchildren.
- “Qualified” medical expenses greater than 7.5% of “adjusted gross income” or the cost of medical insurance if unemployed.
- For disabled individuals.
Beginning at age 70 ½, you must make “Required Minimum Distributions” – so the government can finally tax that money.
- “Required Minimum Distributions” are set percentages of the savings in your IRA based on age, rising from 3.6 percent in the year you turn 70 ½ to 11.6 percent by the time you’re 95.
- Note that you don’t have to spend what you take out after paying the tax. You could also save the after-tax amount.