Like when you open a bank account or a membership to an organization, you need to hear some guidelines before you finally set up an account with the IRA. Guidelines, as its name implies, will guide you to whatever things that you have to do. First and foremost, I advice that you take time to gather facts about the IRA program and it will be very helpful to understand its rules too.
You may have known already that IRA has two forms. The first to be created is the traditional IRA and the latter to be created is the Roth IRA. In this, you have to put a distinction between the two forms of IRA because they are slightly different form each other. Below, I will enumerate some of the rules of both the Roth IRA and the traditional IRA and will also compare them with each other.
Eligibility Rule- The rule of eligibility sets the qualifications which an individual must meet to be able to open an account whether in the traditional IRA or in the Roth IRA. Under the traditional IRA, individuals who are already 79 ½ years old can no longer open an account. On the other hand, the Roth IRA allows anybody whether he or she is in the senior years or not to open an account.
Contribution Rule- The traditional IRA rules and the Roth IRA rules are governing the same contribution limit. The contribution limits for 2011 is composed of two rules. One is for those who are below 50 years old while the other is for those who are above 50 years old. Those who are below 50 may deposit a total amount of not above $5,000 while the limit for those who are 50 and beyond is $6,000.
Distribution Rule- Distribution under the traditional IRA starts when the contributor is 59 ½ years in which case, he may or may not withdraw. But at the age of 79 ½, withdrawal is mandatory. Looking into the Roth IRA withdrawal rules, contributors can withdraw at any age as long as the five-year taxable period is already done. More importantly, withdrawals in the Roth IRA account is tax-free if the contributor is able to abide the Roth IRA income limits.