Got IRA? Here Are 10 Things the IRS Wants You to Know
April 4, 2011 (South Florida Sun-Sentinel) If you are like me, the three-word terms IRA and IRS can be intimidating, especially during tax season. But knowledge is power - and can lead to more savings - when you stop fearing Individual Retirement Accounts, and the Internal Revenue Service, for that matter.
Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.
1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA 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 contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
8. You must be under age 70 at the end of the tax year in order to contribute to a traditional IRA.
9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
10. Refer to IRS Publication 590, for more information on contributing to your IRA account.
Bonus tip: Both Form 8880 and Publication 590 can be downloaded at http://www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).