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How to Contribute to an IRA

Individuals must have earned income in order to contribute to individual retirement accounts. They must open an IRA account with a custodian such as a bank, credit union, or investment firm. After selecting a custodian, an individual must deposit cash into his or her investment of choice. The largest contribution allowable is the smaller of $5,000 for 2008 (up from $4,000 for 2007) or 100 percent of earned income (income from employment).

A spouse who is not working or has earned only a minimal income may set up a spousal IRA.

For 2008, a married couple in which both spouses work may contribute up to $10,000 in total, with $5,000 in each account (or 100 percent of earned income, if it is less). If a spouse is not working or has earned only a minimal income, he or she may set up what is called a spousal IRA. As long as the other spouse has earned income of at least $10,000, the two may set up two IRAs with a maximum total contribution of $10,000, with a maximum of $5,000 contributed to each account.

Congress added a special catch-up provision that allows a person 50 or older to make an additional $1,000 contribution.

You may make contributions for a particular year up until April 15 of the following year (unless that date falls on a weekend, in which case it will be extended). For example, if you want to contribute to your IRA for 2008, you have all of 2008, plus up until April 15 of 2009. You must mark on the contribution form the year for which the contribution is made.