A. You can still establish and contribute to an IRA account for the 2013 tax year in 2014 until the time you file your 2013 taxes (deadline April 15, 2014). If you have a Keogh or Simplified Employee Pension (SEP) IRA you can even receive a filing extension, extending your contribution deadline to Oct. 15, 2014.
IRA Income Qualifications
Whether you earn over $1 million or absolutely no income you can still qualify for an IRA. Even your child who earns income delivering newspapers can qualify for an IRA. If you don't earn any income, as long as your spouse have earned income, you can still qualify.
What is earned income? Earned income includes salary, self-employed income and sales commissions. It does not include interest, dividends, pension income or social security income.
IRA Contribution Limits
If you are under age 50, contribution limit is to the lesser of earned income or $5,500 in 2013 and 2014; if you are older age 50, that limit increases to $6,500 in 2013 and 2014. For example, a 65 year-old retired husband and 63 year-old semi-retired wife, who earns $13,000, could each contribute $6,500 to an IRA in 2013 and 2014, respectively. Another example, a 12 year-old part-time newspaper deliverer, who earns $3,000, could also contribute $3,000.
Contributions to traditional IRA are fully tax deductible if you are ineligible to participate in an employer-sponsored retirement plan. Otherwise, the deduction begins to phase-out once your Modified Adjusted Gross Income (MAGI) exceeds $59,000 in 2013 ($60,000 in 2014) for single filers or $95,000 in 2013 ($96,000 in 2014) if both persons are covered and married filing jointly.
The taxes on all capital gains, dividends and interest from traditional IRA are deferred until assets are withdrawn. This deferral is even more important now since The Affordable Care Act introduced a 3.8% investment surtax.
Contributions to Roth IRA are never deductible and eligibility begins to phase-out once your MAGI exceeds $112,000 in 2013 ($114,000 in 2014) for single filers or $178,000 in 2013 ($181,000 in 2014) for those married filing jointly.
The Roth IRA has a very important distinction from the Traditional IRA. Not only is income sheltered from taxation while in the Roth IRA, but withdrawals are tax free.
See our previous discussion - which is better - traditional IRA or Roth IRA.