Any individuals, including those that are covered by an employer sponsored retirement plan, may make contributions to an Individual Retirement Plan (IRA). Generally, the deduction is limited to $5,000 or 100% of compensation. Individuals who are 50 or older may make an additional $1,000 "catch-up" contribution each year. If the taxpayer or spouse is an active participant in a qualified plan, the deduction is phased out when AGI reaches certain levels depending on the filing status and whether one or both spouses are active participants for joint returns.

Plans must be established and contributions made on or before April 15, 2011. Distributions may be made without 10% penalty on death, disability or reaching age 59-1/2. Distributions from IRA plans are taxable as ordinary income and must begin when the taxpayer reaches age 70-1/2. If non-deductible contributions have been made to the IRA, a portion of each distribution will be considered a return of the original non-deductible contribution and will be non-taxable.

A Roth IRA is a tax-free nondeductible Individual Retirement Plan for individuals with AGI below certain levels determined by filing status. Contributions to a Roth IRA are not deductible; however, distributions from Roth IRAs made more than 5 years after the Roth IRA is established are tax free providing the distribution is made after age 59-1/2, death or for first time homebuyer expenses up to $10,000. Individuals may make contributions to a Roth IRA if they have taxable compensation and adjusted gross income of less than $179,000 for joint returns, $10,000 for married separate returns if the spouses lived together during the year and $122,000 for single or head of household, qualifying widower or married separate returns if the spouses did not live together during the year.

If contributions are made only to Roth IRAs, the contribution is generally the lesser of $5,000 ($6,000 if 50 or older) or the taxpayer's taxable compensation. If contributions are made to both Roth IRAs and traditional IRAs, allowable contributions to Roth IRAs are reduced by contributions made to traditional IRAs.