IRA retirements accounts are a great way to plan for retirement. As the years winds down, it is important to begin assessing what kind of contributions you may be making to a retirement plan. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.
Top 10 Tips about IRA Contributions
The great thing about a traditional IRA is that, even if you make contributions in the following tax year, the IRS lets you take a deduction for some of these IRA contributions on your prior-year tax return (you must make the contributions by mid-April). In other words, if you are filing your 2014 taxes, the contributions you make to a traditional IRA through mid-April of 2015 may be deductible. This is why your account administrator has until May 31 to send Form 5498 to you.
There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA.
Below are the top ten things you should know about money you put aside for retirement in an IRA.
- You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
- Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
- The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
- To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
- For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
- Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
- You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
- To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
- You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
- Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.
You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.
You can get a traditional IRA if you’re under age 70 1/2 and receive taxable compensation.
- Wages, salaries, and tips
- Sales commissions
- Professional fees
- Self-employment income
- Military compensation while serving in a combat zone tax-exclusion area
- Alimony or separate maintenance payments included in gross income
Income not included as compensation for IRA purposes includes:
- Profit from the sale of stocks or other property
- Rental income
- Pension or annuity income
- Deferred compensation
Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).