Can they just decide to take 500 out anytime they want and if so, do they have to pay taxes on it? I am not talking about taking out money that may have been made in the account but, just some of the original funds that were put in.
There are a lot of variables in regards to IRAs.
First, you (or your spouse) must have earned income to contribute to an IRA. If you get a W-2 at the end of the year, you have earned income.
Second, if you open a Traditional IRA you will most likely receive a tax deduction. If this is the case, then you will owe taxes on the distribution. If you make a non-deductible contribution to a Traditional IRA then your withdrawals are prorated. A portion of your withdrawal will be taxable. You can make these withdrawals at any time and after you turn age 70 1/2 you will have mandatory withdrawals.
Third, if you open a Roth IRA you normally have to leave the money in the IRA for 5 years to be able to take money out tax-free. However, under IRS ordering rules the first money out will be your contributions. These withdrawals are not taxable. There are no mandatory distributions from Roth IRAs.
Make sure you understand the fees associated with an IRA of that size. Many brokerage firms charge a bookkeeping fee for accounts under certain minimums.
This is a top level look. I'd recommend you get advice from an Enrolled Agent or CPA on the tax implications of your plan.
You should look into a Roth IRA if you qualify. They work out better for people who are 65 and just starting out. Even if you can find a low fee option for your traditional IRA, you still have to start taking out RMD.'s when you turn 70.5. There are no RMD's for Roth IRAs so it would be easier for you. You just have to make sure you qualify for ROTH IRA.
The others have provided good answers. If you and I were sitting down, the first question I would ask is: why are you doing this? That’s not a challenge, but it will determine my advice. If it’s to get a tax deduction on earned income, the regular IRA would serve. If it’s to put money aside that you will probably not need the Roth IRA would probably be better. If there’s a third reason, it’s possible that an IRA may not be the best choice at all.
It's hard to answer your question without more information. In general contributions to an IRA are put there for a tax deduction. If you take said tax deduction, then all monies out will be taxed at your normal income tax rate. If you do not need the deduction you may be better suited to a Roth IRA but I can't give you that advice without knowing your situation fully