An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year and you, or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment. The most you can contribute to your traditional IRA for 2003 is $3,000. For 2003, the $3,000 is increased to $3,500 if you are 50 or older.
You can only make this deduction if your adjusted gross income falls under a certain level: $40,000 on a single or head of household return, $60,000 if you are married filing jointly.
You can also be penalized for withdrawing from your IRA if you are under 59½ years old.