IRA Deduction

Contributing to an individual retirement account (IRA) is part on retirement planning and an important consideration when preparing your tax return.

Definition of IRA

An IRA is a contribution to a an IRA retirement account. You and your spouse can each open a IRA account and deduct the contribution as a traditional IRA deduction.

Qualifications for IRA Deduction

An employee receiving taxable compensation on a Form W-2 or a self-employed individual who is under age 70 1/2 at the end of the calendar year is eligible to be a participant in an IRA retirement plan. You can open a traditional IRA even if you are a participant in an employer sponsored retirement plan at work. However the deductibility may be limited.

Contributions to IRA

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Deduction of IRA

IRA contributions are deductible on your personal tax return as a deduction from income. If you are a participant in an employer retirement plan, then your deduction, not the contribution, is phased out depending upon your modified AGI adjusted gross income. For example, for 2013 the phaseout amounts if the taxpayer is an active participant in an employer plan were MFJ – $95,000-$115,000 and Single and HOH – $59,000-$69,000 and MFS – $0 to $10,000. If the spouse was an active at work in a retirement plan, then  other phaseout limits apply.

Distributions from IRA

Distributions from an IRA must be made when you reach age 70 1/2 and are taxable as income unless you designated some of your IRA contributions as non-deductible and these contributions are withdrawn tax-free.

Due Dates for IRA

IRA contributions must be made by the return due date of  April 15th each year. An income tax extension will not extend the time to contribute to an IRA.