tara berksModerator@t_berksRefundtalkKeymaster@adminAugust 20, 2017 at 3:44 am #6590
Topic 451 – Individual Retirement Arrangements (IRAs)
An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement. There are several different types of IRAs, including traditional IRAs and Roth IRAs. You can set up an IRA with a bank, insurance company, or other financial institution.
You may be able to deduct some or all of your contributions to a traditional IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in your traditional IRA, including earnings, generally aren’t taxed until distributed to you. IRAs can’t be owned jointly. However, any amounts remaining in your IRA upon your death will be paid to your beneficiary or beneficiaries.
To contribute to a traditional IRA, you must be under age 70½ at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes. Compensation doesn’t include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation.
You can figure your allowable deduction using the worksheets in the Form 1040 Instructions, Form 1040A Instructions, or in Publication 590-A (PDF), Contributions to Individual Retirement Arrangements (IRAs). You may claim an IRA deduction on either Form 1040A (PDF) or Form 1040 (PDF), U.S. Individual Income Tax Return; you can’t claim an IRA deduction on Form 1040EZ (PDF), Income Tax Return for Single and Joint Filers With No Dependents. If you made nondeductible contributions to a traditional IRA, you must attach Form 8606 (PDF), Nondeductible IRAs. Use Form 8880 (PDF), Credit for Qualified Retirement Savings Contributions, to determine whether you’re also eligible for a tax credit. Enter the amount of the credit on either Form 1040A or Form 1040. You can’t use Form 1040EZ to claim this credit.
Distributions from a traditional IRA are fully or partially taxable in the year of distribution. If you made only deductible contributions, distributions are fully taxable. Use Form 8606 to figure the taxable portion of withdrawals when the traditional IRA contains nondeductible contributions.
Distributions made prior to age 59½ may be subject to an additional 10% tax. You may also owe an excise tax if you don’t begin to withdraw minimum distributions by April 1 of the year after you reach age 70½. These additional taxes are figured and reported on Form 5329 (PDF), Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Refer to the Form 5329 Instructions for exceptions to the additional taxes.
A Roth IRA differs from a traditional IRA in several ways. Contributions to a Roth IRA aren’t deductible (and you don’t report the contributions on your tax return), but qualified distributions or distributions that are a return of contributions aren’t subject to tax. In addition, you don’t have to be under age 70½ to contribute to a Roth IRA. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it’s set up. For more information on Roth IRA contributions, refer to Topic 309.If You Found The Information Here Was Useful Please Consider Sharing This Page!
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