At age 18, any person with an earned income can contribute to a traditional IRA for each year compensation is received.

Age 70-1/2 rule. Contributions cannot be made for the year in which you reach age 70-1/2 or for any later year.

A nonworking spouse under age 70-1/2 who files a joint return that includes earned income.

For Tax Year 2009:
Single filer with modified adjusted gross income (MAGI) of:

• $104,999 or less — full contribution
• $105,000–119,999 — partial contribution
• $120,000 or more — not eligible

Joint filers with MAGI of:

• $166,999 or less — full contribution
• $167,000–176,999 — partial contribution
• $177,000 or more — not eligible

Married, filing separately with MAGI of:

• $0–$9,999 — partial contribution
• $10,000 or more — not eligible

For Tax Year 2009:
Single filer, retirement plan participant with modified adjusted gross income (MAGI) of:

• $55,000 or less — fully deductible
• $55,001–64,999 — partially deductible
• $65,000 or more — nondeductible

Single filer, no retirement plan participation:

• Fully deductible

Joint filer, retirement plan participant with MAGI of:

• $89,000 or less — fully deductible
• $89,001–108,999 — partially deductible
• $109,000 or more — nondeductible

Joint filer, no retirement plan participation (but spouse is participant) with MAGI of:

• $166,000 or less — fully deductible
• $166,001–175,999 — partially deductible
• $176,000 or more — nondeductible
  

Married, filing separately with MAGI of:

• $0–$9,999 — partial contribution
• $10,000 or more — not eligible

Treatment on Contributions:
Taxes are deferred until distributions are made; taxable distributions are treated as ordinary income.

Treatment on Earnings:
Earnings grow tax-deferred until distributions begin. Distributions are taxed as ordinary income

Treatment on Contributions:
Contributions are made with after-tax money; therefore, withdrawals from the contribution amount (basis amount) are always tax-free.

Treatment on Earnings:
Qualified distributions are tax-free.
Nonqualified distributions: earnings are taxed as ordinary income.
Conversions: earnings are tax-free after the conversion amount satisfies the five-year investment period.

Conversion to a Roth IRA:

For Tax Year 2009: allowed, if modified adjusted gross income (MAGI) is $100,000 or less (single or joint) and, if married, taxpayers file jointly. The converted amount is taxed as income, but no penalty applies.

For Tax Year 2010: Beginning with the 2010 tax year, a new tax law allows investors with MAGIs greater than $100,000 to also convert to a Roth IRA. Investors who convert in 2010 only can spread their tax payment over two years by including half the conversion amount as income in 2011 and the other half in 2012.

To employer-sponsored plans: pretax contributions can be rolled over to a 401(k) or to another qualified plan, as well as to 403(b) and 457(b) plans. However, the receiving plan must accept IRA rollovers.

From employer-sponsored plans: eligible pretax and after-tax distributions from qualified plans, as well as from 403(b) and 457(b) plans, can be rolled over.

From/to another Roth IRA: allowed.

From employer-sponsored plans: eligible Roth contributions and earnings from qualified plans, as well as from 403(b) plans, can be rolled over.

Distributions from contributions and earnings can be taken after age 59-1/2 without federal tax penalty.

Must begin no later than April 1 of the year following the year the taxpayer turns 70-1/2.

Premature distributions are subject to a 10% penalty tax unless you qualify for the following exceptions:

• You are disabled.
• You are taking substantially equal periodic payments
• The distribution is for certain medical bills.
• The distribution is used for health insurance premiums during unemployment lasting at least 12 weeks.
• The distribution is for post-secondary education expenses.
• The distribution is used to purchase a first home (up to $10,000 lifetime maximum).

Distributions to your beneficiaries are also exempt from the 10% penalty.

Distributions from contributions can be made any time without taxes or federal tax penalty.

Distributions from earnings are tax-free after age 59-1/2 if your initial contribution to the account was made at least five years ago, and:

• You are disabled
• You are purchasing your first home

Payments made to your beneficiaries after the five-year period are also tax and penalty free. Payments made before the end of the five-year period are penalty free.

Distributions from earnings are not subject to the 10% penalty as long as you qualify for an exception. (same exceptions for Traditional IRAs)

Distributions from a conversion amount must satisfy a five-year investment period to avoid the 10% penalty. This pertains only to the conversion amount that was treated as income for tax purposes.

Must begin no later than April 1 of the year following the year the taxpayer turns 70-1/2.

May be taken in a lump sum or annual payments.

All IRA balances are aggregated, but the withdrawals may be taken from only one. However, the contributions/earnings are taxed pro rata.