Tax time is right in our face. If you have not already contributed to an IRA, it’s not too late. The general limit for 2014 “the most than can be contributed to your traditional IRA” is $5,500 for an individual OR $6,500 if you are 50 years of age or older. Please refer to this tip published by the IRS because it’s the easiest, most comprehensive, most credible quick cheat sheet that I can provide.
So you create an IRA, whether it be Traditional or Roth. You can do that at a bank or through an insurance contract as an example. The tax deferred fixed rate annuities that I discussed in my newsletter and previous blog is an ideal home for these types of funds. It’s a safe haven. You can’t lose your principle, you have a guaranteed rate of return that compounds for you very nicely due to the tax deferral. Here’s a flyer worth viewing.
You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases).
Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. See Who Can Open a Traditional IRA , earlier. Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. Contributions can resume for any years that you qualify.
Contributions must be made by due date. Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means that contributions for 2014 must be made by April 15, 2015, and contributions for 2015 must be made by April 15, 2016.
Age 70½ rule. Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year.
You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. If you were born on or before June 30, 1944, you cannot contribute for 2014 or any later year.
Designating year for which contribution is made. If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it).
Filing before a contribution is made. You can file your return claiming a traditional IRA contribution before the contribution is actually made. Generally, the contribution must be made by the due date of your return, not including extensions.
Contributions not required. You do not have to contribute to your traditional IRA for every tax year, even if you can.
How Much Can You Deduct?
Generally, you can deduct the lesser of:
The contributions to your traditional IRA for the year, or
- The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed .
However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. See Limit if Covered by Employer Plan , later.