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IRA Tax Tips
All taxpayer circumstances are different. Please see your tax advisor for specific help.
Make an IRA Contribution!
Contributions to a traditional individual retirement account can be tax-deductible in the year you make them. While IRS rules on IRA contributions vary, you can generally deduct the full amount of an IRA contribution if you and your spouse aren't covered by retirement plans at work. If you are, your contribution might be limited based on your adjusted gross income.
If you qualify, an IRA contribution can be a great way to reduce this year's taxes. For example, if you are in the 35 percent tax bracket and make a $5,500 deductible contribution—the maximum amount for 2017—you can save as much as $1,925 in taxes. Best of all, you can contribute to an IRA all the way until tax filing day, typically April 15. Most other tax-saving strategies must be in place by December 31.
In addition to providing a current tax deduction, an IRA defers taxes on earnings and contributions until distribution, which can be a great way to save for retirement.
The IRS has 10 important tips for you about setting aside money for your retirement in an Individual Retirement Arrangement.
1) You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
2) You must have taxable compensation to contribute to an IRA. This includes income from wages, salaries, tips, commissions and bonuses. It also includes net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation.
3) 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.
4) For 2012, the most you can contribute to your IRA is the smaller of either your taxable compensation for the year or $5,000. If you were 50 or older at the end of 2012 the maximum amount increases to $6,000.
5) Generally, you will not pay income tax on the funds in your traditional IRA until you begin taking distributions from it.
6) You may be able to deduct some or all of your contributions to your traditional IRA.
7) Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure the amount of your contributions that you can deduct.
8) 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.
9) You must file either Form 1040A or Form 1040 to deduct your IRA contribution or to claim the Saver’s Credit.
10) See Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more about IRA contributions