If you own an Individual Retirement Arrangement (IRA) you still have until April 17, 2018 to make your contribution to be eligible for a tax credit or deduction on your 2017 tax return. If you are wondering why that particular date, this year’s tax-filing deadline is April 17th. So make sure your file your 2017 tax return or extension on or prior to then as well.
IRA’s and How They Work
An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account.
Tax Deductions & Who’s Eligible
Contributions to a traditional IRA are often tax deductible, but the distributions are generally taxable. Contributions to a Roth IRA are not deductible, but the qualified distributions are tax-free. To count for a 2017 tax return, contributions must be made by April 17, 2018. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Retirement Savings Contribution Credit a.k.a. “Saver’s Credit”. You’re eligible for the credit if you’re:
- Age 18 or older;
- Not a full-time student; and
- Not claimed as a dependent on another person’s return.
Claiming the Saver’s Credit
You or your tax preparer will need to use IRS Form 8880. The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income. The Saver’s Credit is often available to IRA contributors whose adjusted gross income falls below certain levels.
Eligible taxpayers get the credit even if they qualify for other retirement-related tax benefits. Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the taxes they owe. The amount of the credit is based on several factors, including the amount contributed to either a Roth or traditional IRA and other qualifying retirement programs.
Contributing to Your IRA
Generally, eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was 50 years of age or older at the end of 2017, the limit is increased to $6,500. The same general contribution limit applies to both Roth and traditional IRAs. However, a Roth IRA contribution might be limited based on filing status and income. An individual can’t make regular contributions to a traditional IRA in the year they reach 70½ and older. However, they can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of age.
If neither the taxpayer nor their spouse was covered for any part of the year by an employer retirement plan, they can take a deduction for total contributions to one or more traditional IRAs up to the contribution limit or 100 percent of the taxpayer’s compensation, whichever is less.
As you can see, tax laws are very complicated and if you owe any tax debt of any kind and are wondering how to deal with it, please contact the law offices of Bond & Botes to schedule an appointment for a free initial consultation.
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