When Can I Invest in an IRA?

To invest in an IRA is practically a must for working Americans. IRAs allow you to invest money for retirement and withdraw earnings tax-deferred or tax-free. When you can contribute may depend on when you start earning income. Your age and the tax-filing deadline for the year are also factors.

Tax-Filing Deadline

Whether you contribute to a traditional IRA or Roth IRA, you have until April 15 -- the last day to file your return -- to make a contribution for the tax year. So, for example, if you wanted to contribute for tax year 2012, April 15, 2013 would be the deadline to put money in the account.

Earned Income Requirements

You can only contribute earned income to an IRA. In addition to wages, salaries and commissions, the IRS considers bonuses, military pay and even alimony as earned income. Unemployment benefits and investment income, on the other hand, are not allowed. At the time of publication, the yearly IRA contribution limit was $5,000 for folks under age 50. If you earn at least $5,000, you can contribute the maximum. If, on the other hand, you earn just $2,000 and your remaining income for the year comes from rental property or investments, you can only put $2,000 in your IRA.

Traditional IRA -- Age 70 1/2

If you own a traditional IRA, you have to stop making contributions when you reach age 70 1/2. That same year, the IRS requires that you start taking distributions.

Roth IRA -- Lifetime Contributions

By contrast, Roth IRA rules allow you to keep adding money to your account for as long as you live. Moreover, you never have to take a distribution. This makes the Roth a useful vehicle to transfer wealth to your heirs.

the nest