Top Ten Things the IRS Wants You to Know About IRA Contributions:
Tax breaks and saving for retirement are two very hot topics regarding personal finance. Now we put them together with these tips from the IRS:
Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year
IRS Tax Tip 2011-61, March 28, 2011
This year, you have a few extra days to make contributions to your traditional Individual Retirement Arrangements. That’s because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing your tax return and making contributions to your 2010 IRA to Monday, April 18, 2011.
Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.
1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
2. 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 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
10. Refer to IRS Publication 590, for more information on contributing to your IRA account.
Both Form 8880 and Publication 590 can be downloaded on this website or ordered by calling 800-TAX-FORM (800-829-3676).
It is especially important to understand tip #2. When you make a contribution in 2011 to your Traditional IRA for 2010 you need to make sure that it has been designated for 2010 not 2011. Make sure your contribution is going into the bucket for the correct year to make sure you get the tax break in the right year and avoid making contributions in excess of the limit for a particular year (see point #5). For more information about Traditional IRAs see my previous post here:
Also for information about ROTH IRAs see this post:
And finally for information about ROTH Conversions see this post:
For help from an experienced CPA with your income tax returns and to make sure you are taking full advantage of IRAs given your circumstances and goals call me at 972-439-1955.
Jeff Haywood, CPA
I prepare the following types of tax returns:
Federal and State Returns
Also, I am available for tax planning and discussions about business, retirement planning and life goals.
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As always keep in mind that the content provide on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.