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Most people, especially those belong to the working class, worry about their financial future after they retire. To address this concern, a financial plan was designed to help people achieve financial stability for the future. This plan is called IRA, or Individual Retirement Account, which is fundamentally a retirement savings plan for working people and employees.

Basically, IRAs are funds that are contributed by an individual for a specific period. With the exception of Roth IRA, the contributions are generally tax-deductible based on the person’s income, tax filing status, and the coverage of the retirement plan instituted by the employer.

However, there are several types of IRA, and each type come with specific rules. While all of the rules are important, particularly the IRA withdrawal rules, the IRA rules on eligibility are perhaps the first thing that most people should know, since recognizing this rule will help them once they encounter or apply for IRA.

IRA Rules on Eligibility

The Internal Revenue Service has imposed slightly different rules for each type IRA regarding the qualifications. These are the following:

Traditional IRA

Generally, there are two IRA rules for eligibility for this type. First, the person should be under 70-and-a-half years old. Second, the person must have source of income to pay for the contributions. These sources could be in the form of wages, commissions, profits, and bonuses.

Roth IRA

Compared to Traditional IRA, Roth IRA rules on eligibility is somehow more flexible. There are no age limitations, but any source of compensation is still required for the contribution.

Simple IRA

Since the employers institute this type of IRA, this rule essentially applies to the employers, too. For an employer to be eligible, its number of employees should not exceed 100. These employees should have received at least $5,000 in compensation on the previous year. Another rule is that the employer should not offer another retirement plan such as 401k. To put it simply, Simple IRA applies primarily for small business as their retirement solution.

On the other hand, for an employee who would want to take his employer’s IRA plan, the employee should received compensation of at least $5,000 for the last two years and expects to be paid with at least the same amount for the current.

As mentioned earlier, there are still more equally important IRA rules that the people should be aware of, such as IRA withdrawal rules. Nevertheless, knowing the basic rules on eligibility is indeed the first step to knowing more about IRA.