Traditional Individual Retirement Accounts (IRA’s)
Who can contribute?
You can open and contribute to a traditional IRA if:
- You have taxable compensation, and
- Are under age 70½ at the end of the year
Taxable compensation is generally what you earn from working. This includes wages, salaries, tips, income from self-employment, and other amounts received for your personal services. Compensation also includes taxable alimony.
How much can I contribute?
The maximum contribution for 2014 is the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation.
When can I contribute?
Contributions must be made by the due date of your tax return, not including extensions. This is usually April 15th.
How much can I deduct?
The amount that you can deduct is based on whether or not you and/or you spouse are covered by a retirement plan where you work.
- If neither you nor your spouse is covered at work, you can deduct the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation. The maximum deduction for a married couple is $13,000.
- If you are single, head of household or married filing separate and did not live with your spouse at any time during the year and covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $59,000. Once your modified adjusted gross income exceeds $69,000, you are not allowed a deduction.
- If you are married filing a joint return and both of you are covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $95,000. Once your modified adjusted gross income exceeds $115,000, you are not allowed a deduction.
- If you are married filing a joint return, and only one of you is covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $178,000. Once your modified adjusted gross income exceeds $188,000, you are not allowed a deduction.
- If you are married filing a separate return and did not live with your spouse at any time during the year and covered at work, your deduction completely phases out when your modified adjusted gross income reaches $10,000.
Can I make nondeductible contributions?
If any or all of your contributions exceed the deductible amount based on the limitations discussed above, these contributions can be designated as nondeductible contributions. This will make a portion of your future distributions nontaxable. In order to designate these contributions as nondeductible, you must file form 8606. In certain circumstances, if your income is too high to deduct a traditional IRA or to contribute to a Roth IRA, the use of nondeductible IRA can be a useful planning tool.
As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.
Email us at: [email protected]
Call us at: 302-239-3500
Visit our website: http://www.dohertyandassociates.com
– Doherty & Associates Team