As we get closer to the end of the year, we get lots of questions from people about Individual Retirement Arrangements. Do you have an IRA? Will making a contribution save you money on taxes? What’s the difference between a Traditional IRA and a Roth IRA?
Here are answers to some frequently asked questions about IRAs. Let us know if you have questions about how these rules apply to you!
- You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
- You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you’re married and file a joint return, generally only one spouse needs to have compensation. If you are retired and your only income is from social security, pensions and investments, you will not be able to make an IRA contribution.
- You can contribute to an IRA at any time during the year. To count for 2014, you must make all contributions by the due date of your tax return. This does not include extensions. That means you usually must contribute by April 15, 2015. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the right year.
- In general, the most you can contribute to your IRA for 2014 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2013, the maximum you can contribute increases to $6,500.
- You may be able to deduct some or all of your contributions to your traditional IRA. You can’t deduct contributions to a Roth IRA. When you take money out of your traditional IRA, you will be taxed on your distributions. Qualified distributions from a Roth IRA are tax-free.
- If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return.
Still not sure what kind of IRA is right for you? Give us a call! We are happy to meet with our clients and help you plan the best way to save for retirement.