Header Section

Smart money/Coming Soon

IRA Contribution Questions at Tax Time

IRAs and tax season go hand in hand. Below are a list of the most popular IRA tax-related questions we have been receiving over the last month or so. Make sure you are up to speed on what you can and can't do to get the most out of your tax return, and in turn, your retirement planning.

Can I make a contribution? As long as you have earned income and, for IRA contributions, you are under age 70 1/2 for the entire year, you can contribute up to a maximum of $5,000 to your IRA or Roth IRA but no more than $5,000 to all IRAs and Roth IRAs combined. If your earned income is less than $5,000 you can contribute up to the amount of your earned income. Participation in an employer plan, including SEP and SIMPLE plans has NO impact on your ability to make an IRA contribution. There are income limits for making a Roth IRA contribution but you can contribute after age 70 1/2.

Can I make a contribution for my non-working (or lower wage earning) spouse? As long as you and your spouse meet the requirements listed above, yes a full or partial contribution can be made for a non-working spouse.

Can I deduct my contribution? Deductibility depends on several factors. These include whether or not you or your spouse is considered covered (not contributing) by an employer plan, your income, and your tax filing status. You can never deduct a Roth IRA contribution.

You can find more information on earned income, deductibility, and Roth income limits in IRS Publication 590. It is available on the IRS website at www.irs.gov. On the left hand side of the screen, click on Forms and Publications. Best of all, it is free.

If you make a non-deductible contribution to an IRA, don’t forget to file Form 8606 with your tax return. This form lets IRS know that you have after-tax money in your IRA. Later on, when you have to, or want to, take distributions from your IRA, you use this same form to let IRS know that not all of your distribution is taxable.

-By Beverly DeVeny and Jared Trexler

0 comments:

Mailbag

Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]lp.com

Q:
Is a monthly retirement check considered income in order to open a Roth IRA?

A:
An IRA contribution must be based on the taxable compensation of the individual for the year of the contribution. Pension, profit sharing or IRA distributions are not considered compensation for the purpose of a contribution to an IRA. Here is a Q&A; article we did on Roth IRA and IRA contributions.