Are you self-employed or employed by someone else in an activity for which you receive earned income or compensation? If so, then you are eligible to make a contribution to either a traditional or a Roth IRA. Cue the marching band!

Traditional IRA eligibility
If you have earned income and are under age 70 1/2, then you may make a contribution to a traditional IRA. The only question is whether that contribution will be deductible. That depends on your income tax filing status and whether you (or your spouse) participated on any day of the year in an employer's qualified retirement plan.

In general, if neither you nor your spouse participated in a 401(k) or other qualified retirement plan, your contribution will be fully deductible.

If you (or your spouse) did participate in an employer-sponsored retirement plan, then your contribution to a traditional IRA might be deductible, depending on your modified adjusted gross income (AGI). (Modified AGI for most folks is the same as the adjusted gross income on the last line of the first page of Form 1040.) The deductible amount of a traditional IRA contribution declines to zero between certain AGI ranges, as follows:

AGI (for 2007 contributions)

• $0 to $10,000 for married couples filing separately
• $52,000 to $62,000 for single or head of household filers
• $83,000 to $103,000 for joint filers
• $156,000 to $166,000 if you are not covered by a qualified retirement plan, but your spouse is (and you're filing jointly)

Within these ranges, the deductible amount declines toward zero as the AGI goes up. For example, for a married couple filing jointly, the deduction starts to decline at $83,000 and becomes zero by $103,000. Alternatively, if you're single and your AGI for 2007 was $50,000, you would be able to fully deduct your IRA contribution. If your AGI was $57,000, you would be able to deduct part of your contribution. If your AGI was $62,000 or higher, you would not be able to deduct your contribution at all.

Roth IRA eligibility
If you have earned income, then you may contribute to a Roth IRA regardless of your age, provided your modified AGI doesn't exceed certain limits. If you're a single filer, then you can make a full contribution to a Roth if your modified AGI is less than $99,000. You may make a partial contribution to a Roth when your modified AGI is between $99,000 and $114,000. But when your modified AGI reaches $114,000, you're no longer eligible.

The phase-out range for a Roth IRA contribution for a married couple filing a joint return is $156,000 to $166,000. For a married person filing separately, the phase-out range is $0 to $10,000.

Eligible for both a Roth and a traditional IRA? Then you've got a choice to make. Let's weigh your options next.