HOW TO CONTRIBUTE TO AN IRA

After selecting a custodian, an individual must deposit cash into his or her investment of choice. The largest contribution allowable is the smaller of $4,000 or 100 percent of earned income (income from employment). Individuals must have earned income in order to contribute to IRAs.

A married couple in which both spouses work may contribute up to $8,000 in total, with $4,000 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 $8,000, the two may set up two IRAs with a maximum total contribution of $8,000, with a maximum of $4,000 contributed to each account.

Congress added a special catch-up provision that allows a person 50 or older to make an additional $500 contribution. This increases to $1,000 in 2006.

You may make contributions for a particular year up until April 15 of the following year. For example, if you want to contribute to your IRA for 2005, you have all of 2005, plus up until April 15 of 2006. You must mark on the contribution form the year for which the contribution is made.

Now let's look at how taxes affect IRAs.