• An Individual Retirement Account (IRA) is a savings account that helps American citizens prepare for the future. While most other methods of investing and saving are subject to normal taxation, an IRA is a special retirement instrument that allows you to invest a certain amount of money every year free from taxation. The accumulation of interest in an IRA is untaxed as well -- taxation occurs only when you withdraw the funds.
  
  

Individual Limits

• Anyone who earns income can contribute to an IRA account. The limit of untaxed contributions you can make to an IRA account depends on two factors: your age and your income. As of 2010, if you are 50 or older, you can contribute up to $6,000 per year, and if you are 49 or younger you can contribute up to $5,000 per year. In either case, you cannot contribute more than your total yearly income into your IRA, even if it is less than the contribution limit.
  
  

Contribution Limits for Multiple IRAs

• If you have two IRAs, you cannot contribute $5,000 into one and $5,000 into the other and expect the full $10,000 to go untaxed. Regardless of how many IRAs you have, the limit on the total amount of untaxed contributions remains the same. You may contribute more than the limit, but any contributions over the limit will incur normal taxation.
  
  

Contribution Limits for Personal and Spouse IRAs

• If you would like to contribute a larger portion of your income into an IRA tax-free, marriage does give you a way to get around the rules for having multiple accounts. If your spouse does not have her own IRA, you can open an IRA account for her and make untaxed contributions that the government counts separately from your own. This allows you to shield twice as much money from taxation.
  
  

Nondeductible Contribution Forms

• Various types of IRAs are available, such as a traditional IRA or a Roth IRA, and you may make different types of contributions. If you make both taxed and untaxed contributions, keep track of how much of each you contribute so that you can make a full account of the separate funds when you receive your IRA distribution(s). This is important because the government is not supposed to tax the previously taxed contributions when you withdraw them from the account, while the previously untaxed contributions do incur taxation upon distribution. To keep this differentiation straight, fill out the IRS form 8606 for each year in which you make taxed contributions to your IRA.