Haven’t made a recent contribution to your IRA (individual Retirement Arrangement)? There’s still time! You still have up until April 15th to make a 2014 IRA contribution and take a deduction on your 2014 tax return.
Yearly IRA Contribution Limits
Your total contributions for a Traditional and Roth IRA cannot exceed $5,500, or $6,500 if you’re over the age of 50. In addition, your IRA contributions cannot exceed your taxable compensation for either year if that compensation falls below the $5,500 or $6,500 limit. It’s also important to note that this IRA contribution limit does not apply to qualified reservist repayments or rollover contributions.
IRA Contributions Can be Tax-deductible
Traditional IRA contributions are tax deductible, however, if you or your spouse are covered by a retirement plan at work your deduction may be reduced or eliminated altogether. If your income is in excess of the current IRA deduction limits, you are still able to make a contribution but will not benefit from an IRA deduction. To see if your income bracket falls within these limits, see following guidelines:
Contribution Limits for Roth IRA
Roth IRA contributions are not deductible, but the account will grow tax free. While the same general guidelines and limitations apply to both Traditional and Roth IRAs, Roth IRA contribution may be subject to limitations based on income and filing status. Use the following IRS guidelines to determine if you are eligible to make a Roth IRA contribution:
IRA Contribution Limits After the Age of 70 ½
After the age of 70 ½ , it is still possible to make rollovers to Traditional IRAs and conversions to Roth IRAs, however, once you reach 70 ½ or over, you won’t be able to make regular contributions to an IRA.
Joint Returns and Spousal IRAs
If you did not have taxable compensation but your spouse did, you still have the ability to contribute to an IRA if you are filing a joint return. Your joint contribution amount cannot exceed the taxable compensation on your return, and your contributions can be fully deductible as long as neither you nor your spouse is covered under a retirement plan at work. To better understand this formula, visit www.irs.gov for more information.
What Happens to Excess IRA Contributions?
Excess IRA contributions are subject to a 6% penalty tax per year for the remainder of the time that the excess contribution remains in the IRA. This tax won’t exceed 6% for the total amount of all IRAs once the end of the tax year is reached. It is considered an excess IRA contribution if you exceed the contribution limit, make an incorrect rollover contribution, or if you are over the age of 70 ½ and make a regular contribution to a traditional IRA. In order to avoid being taxed for excess contributions to your IRA, you can either extract any income earned on an excess contribution, or extract the excess contributions from the IRA prior to your individual income tax return deadline (this includes any extensions if applicable). Refer to IRS Publication 590-A on www.irs.gov for additional exceptions that may allow you to exclude excess contribution withdrawals from your income (before taxes).
What If You Don’t Have an IRA?
Don’t have an IRA? There are several ways to get one. If you have an old plan from a previous employer you can roll that into a Traditional IRA, this is the most common way investors start their IRA. You can also maximize the contribution to an IRA which would total to $11,000 for the years 2014 and 2015 – a good starting amount. If you are self-employed or a contract employee you can also start a SEP IRA and contribute and deduct up to 25% of your income.
If you are planning on making an IRA contribution be sure to do so prior to April 15th, 2015 so you can take the deduction on your 2014 tax bill. When making a contribution, it is important to indicate that any contribution to this new account is for 2014, otherwise the bank will be under the assumption that it’s for the current year, and you will lose out on the contribution room from the 2014 year. Saving for retirement is the best way to ensure financial security and peace of mind, in order to enjoy your retirement to the fullest. Having an IRA ensures that your money is growing with you and will be right there when you leave the workforce.
For more information on establishing and growing your IRA give us a call at (866) 241-9884 and one of our associates will be happy to assist you.