Did you contribute to an Individual Retirement Account (IRA) last year? Are you thinking about contributing to your IRA now? If so, you may have questions about IRAs and your taxes. Here are some tax tips about saving for retirement using an IRA:
- Age Rules. You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
- Compensation Rules. You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.
- When to Contribute. You can contribute to an IRA at any time during the year. To count for 2017, you must contribute by the due date of your tax return. This does not include extensions. This means most people must contribute by April 17, 2018. If you contribute between Jan. 1 and April 17, make sure your plan sponsor applies it to the year you choose (2017 or 2018).
- Contribution Limits. In general, the most you can contribute to your IRA for 2017 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2017, the maximum you can contribute increases to $6,500.
- Taxability Rules. You normally don’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
- Deductibility Rules. You may be able to deduct some or all of your contributions to your traditional IRA.
- Saver’s Credit. If you contribute to an IRA you may also qualify for the Saver’s Credit. It can reduce your taxes up to $2,000 if you file a joint return.
If you don't currently have an IRA and would like to discuss the options available to you, please contact our office.