This is a first of a series of articles that explain these different plans.
The traditional IRA (also called a regular IRA) is probably the most well-know retirement plan. Here are its main components:
Eligibility: You are eligible to contribute to a traditional IRA if you are not covered by an employer's retirement plan (whether you are single or married). In 2013, if you are married and eligible to be covered by an employer's retirement plan, you are eligible to contribute to a traditional IRA if you make less than $115,000 (married, filing jointly). The income limits are $116,000 for 2014
In other words, if you are married and your husband has a 401(k) plan at his work, you could still set up and contribute to a traditional IRA for yourself. In addition, your spouse could contribute to his own traditional IRA, as long as your business profit and his gross income combined are less than $115,000.
Contribution limits: You may contribute up to $5,500 of your profit each year, or up to $6,500 each year if you are age 50 or older. (These are 2013-2014 limits.) You don't have to contribute the maximum each year. Some investment funds allow you to set up an IRA for less than $3,000.
Deadlines: You can set up a traditional IRA before April 16, 2013 (for the 2013 tax season), or before October 15, 2014 if you file a tax extension. The sooner in the year you contribute to your IRA, the more interest it will earn.
Tax deductibility and deferral: Contributions to a traditional IRA are tax deductible. When you withdraw money after age 59 1/2, you will owe income tax on both your contributions and your earnings on your investment.
I will discuss other IRA options in future articles: the Roth IRA, SIMPLE IRA, SEP IRA, and the self-employed 401(k) plan.
Image credit: choicetaxonline.com
I've written much more about IRAs in my book Family Child Care Money Management and Retirement Guide.