Before the year is over, you want to make sure you have maxed out your 401(k) plan at work. For after Dec. 31, you cannot add any more to your 401(k) for 2012. In addition to the 401(k), anyone that earns income can add $5,000 to a Roth or Traditional IRA. If you are over 50, you can add $6,000 to the Roth or Traditional IRA.
Most people choose the Roth IRA if they qualify with the income limits. The income limit for 2012 to contribute to a Roth IRA is $110,000 for a single person and $173,000 for a married couple filing a joint return. So, if you make more than those amounts you cannot add to your Roth IRA.
The other thing to consider is setting up a Roth IRA for your child. As long as someone has earned income and is within the income limits, you can add to the Roth IRA for the child. If your child makes $2,000 in the summer, you can put $2,000 in the Roth IRA for them. If they make $6,000, you are limited to the $5,000 contribution limit. Remember the Roth IRA can be taken out tax free for their first home purchase, higher education or they can leave it in the Roth IRA for their own retirement.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRA's. Their tax treatment may change. Please seek the advice of your tax professional regarding your specific tax situation.