One of the things that makes IRAs so complicated is trying to understand the eligibility, maximum contribution limits, contribution phaseouts, etc. of all the types of IRAs at one time. Technically, there are five types of IRAs: Traditional, Roth, SEPs, SAR-SEPs and SIMPLE. So we are going to limit the discussion here to the traditional IRA.

In this article, all of the rules pertain to 2007. Some of the numbers used in the calculation of how much you can contribute to an IRA are subject to indexing. So you need to obtain the proper figures for any year in question.

The determination of your eligibility for a traditional IRA, and the ability to calculate how much you could contribute, are dependent on several things:

1. Your age

If you are under 50, you can contribute a maximum of $4,000 to a traditional IRA. If you turn 50 during the year or are over 50, you can add another $1,000 which is called a “catch-up” contribution. If you turn 70 ½ during the year, you can't make any contribution.

2. Were you an active participant in an employer sponsored plan during the year?

If so, you still may be able to contribute to an IRA. The amount depends on how much money you made and your tax filing status (single, joint or separate).

Having “modified adjusted gross income” (MAGI) of certain levels requires applying a formula which calculates a gradually decreasing permissible deductible contribution. If your MAGI exceeds certain thresholds, you can't contribute anything. These thresholds depend on how you file your taxes. Here they are:

Married filing jointly: Up to $83,000 of MAGI allows for a full contribution. Then a phrase out begins as income increases. For MAGI of $103,000 or above, no deductible contribution is allowed.

Single or Head of Household: If your MAGI is $62,000 or above, no deductible contribution is possible. The phase out starts at $52,000, so anything lower allows for a full contribution.

Married filing separately: For a MAGI of $10,000 or more, no contribution is permitted and the phase out starts at $0.

3. Do you live with your spouse or file a joint return and your spouse is a participant in a qualified plan, but you are not?

In this instance, your ability to make a contribution is reduced to zero if you have a MAGI over $166,000. Up to a MAGI of $156,000, you can take a full deductible contribution.

4. Did you receive “compensation” during the year?

Contributions must be made from compensation received. Sorry, if you were unemployed all year, sheltering that big day at the track is not permitted.

5. Do you have cash?

Contributions must be made in cash. You can't contribute stock or any other type of asset.

6. Do you file a joint tax return and make less than your spouse?

If so, you may be eligible to make a contribution. This rule was originally intended for a spouse who did not work; however, it may apply to a spouse who works as well.

You will need to apply the rules and work through the math. You may find a spouse has no compensation for the year can make the maximum (i.e. under age 50: $4,000) contribution.

7. Did your employer go bankrupt?

The rules here are pretty narrow, but if you qualify you could be in for a nice surprise. You would have to have been a participant in a 401(k) plan with specific attributes and your employer filed Chapter 11. If you qualify, you would be eligible for catch-up contributions of $3,000 for years 2007-2009. And these catch-up provisions apply to all ages­-you don't have to be 50 or older.

Armed with this information, you should be in a position to determine if an additional deduction is available to you by contributing to an IRA.