Resources:
Why YOU Should Care:
You may be able to deduct some or all of your contributions to a Traditional IRA. The amounts contributed – including any interest or gain – are not taxed until distribution.
Contributions
You may make contributions to a Traditional IRA if you (or your spouse if you are filing jointly) received taxable compensation during the year and you are not age 70.5 by the end of the year.
“Taxable compensation” includes wages, commissions, self-employment income, alimony, and nontaxable combat pay. Certain types of passive income (e.g., dividends, rental income) do not qualify. Consult your tax adviser.
The contribution limit is adjusted semi-regularly as cost-of-living increases. For 2012, the limit was $5,000 (or $6,000 if you are over 50 at year end). For 2013, the maximum is $5,500 (or $6,500 if you are age 50 or over). In both cases, you cannot contribute more than your taxable compensation for the year.
Distributions
Regardless of age at distribution, you will be required to show the amount of the IRA withdrawal on your Form 1040 for the year. If you take a distribution before age 59.5 you will need to pay an additional 10% tax unless you meet one of the following situations:
- You are rolling the amount over from one retirement plan to another
- You are making a qualified charitable distribution
- You withdraw your IRA contribution in the same year before filing your return
Required Minimum Distributions
At age 70.5, you must start taking distributions from your IRA or face a 50% excise tax on the amount not distributed.
