Question: I have a Roth IRA and traditional IRA, both with Vanguard. I am not employed at this time but I would like to contribute to an IRA or somehow take advantage of the down market with indexed mutual funds. Can I do this without having earned income? Lynn, Mooresville, NC

Answer: You need to have earned income in 2008 to contribute to an IRA of any kind. (If you were employed earlier in the year, however, you got a wage or salary and you can then contribute to an IRA even though you aren’t employed at the moment.) The important exception to this general rule is the so-called spousal IRA. A stay-at-home Mom or a stay-at-home Dad can put money into an IRA even if they haven’t earned an income during the tax year. (They’ve certainly worked, however!)

By the way, even if you don’t qualify for an IRA and you want to put some money into index funds to take advantage of a down market, why not do it in a taxable account? The annual tax bite of a broad-based equity index mutual fund like the S&P 500, the Russell 3000, and comparable indexes (assuming that’s what you are interested in) is relatively small since there isn’t a lot of churn with the portfolio by design. You can always tap the money when you need it without paying the 10% penalty that comes with a premature withdrawal of money from a retirement account.