Earned Income

• You must have earned income equal to or greater than the amount you contribute to your traditional or Roth IRA. For 2011, you can contribute up to $5,000 to an IRA, plus an extra $1,000 if you are 50 or older. That means you must have earned income of at least $5,000 or $6,000 to make the full IRA contribution.
  
  

Workplace Retirement

• If you are eligible for a workplace retirement plan like a 401k, you can also contribute the full amount to a traditional IRA if your income is $56,000 or lower, or make a partial contribution if your income is $66,000 or less. Married couples can make a full IRA contribution if their income is $90,000 or less, and a partial contribution if their income is $110,000 or less.
  
  

Roth IRA Income Limits

• If your income is too high to invest in a deductible IRA, you may still be able to fund a Roth. For 2011, single taxpayers can make a full Roth IRA contribution if their adjusted gross incomes are $107,000 or less, and a partial contribution if their incomes are $122,000 or less. Married tax filers can make a full Roth IRA contribution if their combined adjusted gross incomes are $169.000 or less, and a partial contribution if their incomes are $179,000 or less.
  
  

Roth vs. Traditional IRA

• If your income makes you eligible for both a traditional and a Roth IRA, you need to decide which plan gives you the greatest value. If you expect your tax rate to be higher in retirement than it is now, the tax-free withdrawals of a Roth will benefit you more than the current tax deduction. But if you expect your taxes to be lower in retirement, a traditional IRA can be the better value.