Individual Retirement Accounts
Another retirement plan option to consider is an IRA. There are now 3 types of personal IRAs to consider for retirement savings: traditional deductible IRAs, traditional nondeductible IRAs, and Roth IRAs. The maximum amount that can be contributed in 2012 is $5,000 (or taxable earned income if less than $5,000). If you have a nonworking spouse, the contribution limit is $5,000 for each spouse (as long as you have earned income of at least $10,000). Therefore the limit is considerably lower than the limit for other retirement plans.
In addition to the basic contribution limit, those who attain age 50 by year-end can make additional catch-up contributions. The limit on catch-up contributions to IRAs in 2012 is $1,000.
If you are self-employed and have more than 1 business, you must aggregate your business income to determine compensation for purposes of calculating contributions. You cannot base an IRA contribution on a pension or annuity income or income received from property, such as rents, interest, or dividends. (A special rule allows alimony and military combat pay to be treated as compensation for purposes of IRA contributions.)
However, if you are in business and set up an IRA for yourself, you need not cover your employees. For some, this factor alone may dictate in favor of an IRA.
If you are age 70½ and have a business, you cannot make contributions to a deductible or traditional nondeductible IRA. In this instance, you may want to explore ...