You can contribute to a traditional or Roth IRA
whether or not you participate in another retirement plan through your
employer or business. However, you might not be able to deduct all of your
traditional IRA contributions if you or your spouse participates in another
retirement plan at work. Roth IRA contributions might be limited if your
income exceeds a certain level.
Excess contributions are taxed at 6% per year as
long as the excess amounts remain in the IRA. The tax can’t be more than 6%
of the combined value of all your IRAs as of the end of the tax year.To avoid the excess contributions
taxwithdraw the excess
contributions from your IRA by the due date of your individual income tax
return (including extensions); and
withdraw any income earned on the excess contribution.
A traditional IRA is
a way to save for retirement that gives you tax advantages. An IRA is
one of the few legal tax shelters available to taxpayers. It is a tax-favored personal savings
arrangement, which allows you to set aside money for retirement. The original IRA is often referred to as a
"traditional IRA." You may be eligible for a tax credit equal to
a percentage of your contribution. Amounts in your IRA,
including earnings from the IRA, are generally not taxed until
distributed to you.
There are many common
misconceptions about IRAs. First, many think that to contribute to a
traditional IRA, you must be over 70 1/2 at the end of the year. This of
course it not true. Another misconception is that if you are married both
you and your spouse when filing a MFJ tax return, must have taxable
compensation in order to contribute to an IRA. You and your spouse can each
make IRA contributions even if only one of you has taxable compensation. You
can make a contribution on behalf of your spouse and it does not even matter
is she did not work or if she earned any compensation for the year.
Distributions from a traditional IRA are fully or
partially taxable in the year of distribution. If you made only
deductible contributions, your distributions are fully taxable. These IRA distributions are subject to a 10% additional
tax if they were made prior to age 59 1/2.
Roth IRA Contributions
The same general contribution limit applies to both
Roth and traditional IRAs. However, your Roth IRA contribution might be
limited based on your filing status and income.You can’t make regular contributions to a traditional IRA in the
year you reach 70½ and older. However, you can still contribute to a Roth
IRA and make rollover contributions to a Roth or traditional IRA regardless
of your age. If you file a
joint return, you and your spouse can each make IRA contributions even if
only one of you has taxable compensation. The amount of your combined
contributions can’t be more than the taxable compensation reported on your
joint return. It doesn’t matter which spouse earned the compensation.If neither spouse participated in a
retirement plan at work, all of your contributions will be deductible.You can contribute to a traditional
or Roth IRA whether or not you participate in another retirement plan
through your employer or business. However, you might not be able to deduct
all of your traditional IRA contributions if you or your spouse participates
in another retirement plan at work. Roth IRA contributions might be limited
if your income exceeds a certain level.Excess contributions are taxed at 6% per year as long as the
excess amounts remain in the IRA. The tax can’t be more than 6% of the
combined value of all your IRAs as of the end of the tax year.To avoid the excess contributions tax
on a
