Friday, October 19, 2012

IRA deductions

For 2011 and 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
  • $5,000 ($6,000 if you’re age 50 or older), or your taxable compensation for the year.
The IRA contribution limit does not apply to:
Claiming a tax deduction for your IRA contribution
Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work (this usually severly limits IRA contributions) and your income exceeds certain levels.

Roth IRA contribution limit
The same general contribution limit applies to both Roth and traditional IRAs. However, your Roth IRA contribution might be limited based on your filing status and income.

IRA contributions after age 70½
You can’t make regular contributions to a traditional IRA if you’re age 70½ or older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Spousal IRAs
If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:
  • withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
  • withdraw any income earned on the excess contribution.