Tax time is also a good time to make important decisions concerning contributions to retirement accounts. If you made or plan to make contributions to an individual retirement account (IRA), you may have questions about this type of retirement plan and how it affects your taxes. Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.
Here are some important tips from the IRS about saving for retirement using an IRA.
- Must be under age 70 at the end of the tax year to contribute to a Traditional IRA retirement account. There are no age limits for contributing to a Roth IRA account.
- The taxpayer must have taxable compensation to contribute to an IRA. This includes income from wages and net income of self-employment. This includes tips, commissions, bonuses and spousal support. If you are married and file a joint return, generally only one spouse needs to receive compensation and can still make a contribution to an IRA.
- You can contribute to an IRA at any time during the year. You just need to do it by the tax filing deadline. To count in 2013, you must have made contributions before the deadline of your tax return. This does not include the time extended if you file an extension for your return. This means that you must contribute before April 15, 2014. If you contribute between 1 January and 15 April, make sure your retirement plan sponsor apply the deposit to the appropriate year. The decision to put funds into a 2013 account is irrevocable.
- In general, the most you can contribute to your IRA retirement plan for 2013 is the lesser of your taxable compensation for the year or $ 5,500. If you were over 50 years of age at the end of 2013, the most you can contribute is increased to $ 6,500.
- Normally you will not pay taxes on your traditional IRA until you begin to withdraw funds. Qualified distributions from a Roth IRA are free of federal tax. There are special rules that taxpayers must consider when taking from a retirement account.
- You may deduct part or all of their contributions to your Traditional IRA. Use the worksheets in the Form 1040A instructions or Form 1040 to figure the amount you can deduct. You can also claim the deduction on either of the two forms. Unlike a traditional IRA, you can not deduct contributions to a Roth IRA.
- If you contribute to an IRA you may also qualify for Savings Credit . This credit can reduce your tax by up to $ 2,000 if you file a joint return. Use Form 8880 , Credit for Qualified Contributions Toward Retirement Plans, to claim the credit. You can file Form 1040A or 1040 to claim the credit for savings.
- See Publication 590 , Individual Retirement Arrangements (in English) for more information about retirement plans IRAs.
Making Contributions to Retirement Accounts Before Tax Deadline
Planning for retirement is important and the IRS has many documents available to help taxpayers understand the decisions that they are making.