Still Time to Make Your IRA Contribution for the 2014 Tax Year

Did you contribute to an Individual Retirement Arrangement last year? Are you thinking about contributing to your IRA now? Here are some IRS tax tips about saving for retirement using an IRA.

Age rules.  You must be under age 70½ 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.

Compensation rules.  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 are married and file a joint tax return, only one spouse needs to have compensation in most cases.

When to contribute.  You can contribute to an IRA at any time during the year. To count for 2014, you must contribute by the due date of your tax return. This does NOT include extensions. That means most people must contribute by April 15, 2015. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the year you choose (2014 or 2015).

Contribution limits.  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 2014, the maximum you can contribute increases to $6,500. If you contribute more than these limits, an additional tax will apply. The added tax is 6 percent of the excess amount that you contributed.

Taxability rules.  You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.

Deductibility rules.  You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount that you can deduct. You may claim the deduction on either form. You may not deduct contributions to a Roth IRA.

Saver’s Credit.  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. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.

Disclosure

We inform you that any tax advice provided or implied on this post (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.

While the information contained in this post is believed to be reliable, we cannot guarantee its accuracy or completeness.

Why Is My Social Security Taxed?

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine whether or not you need to pay taxes on your benefits.

  • Form SSA-1099.  If you received Social Security in 2014, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.
  • Only Social Security.  If Social Security was your only income in 2014, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources such as part-time jobs, dividends, or interest you may have to pay taxes on some of your benefits.
  • Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
  • Base Amounts.  The three base amounts are:
    • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2014.
    • $32,000 – if you are married filing jointly.
    • $0 – if you are married filing separately and lived with your spouse at any time during the year.

 

Disclosure

We inform you that any tax advice provided or implied on this post (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.

While the information contained in this post is believed to be reliable, we cannot guarantee its accuracy or completeness.