Self-Directed
IRA Rules
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Gregory J. Cook, EA, CPA+ Accredited Tax Advisor Past President Alabama Society of Enrolled Agents Past President Alabama Association of Accountants |
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An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You can set up different kinds of IRAs with a variety of organizations, such as a bank or other financial institution, a mutual fund, or a life insurance company.
The original IRA is referred to as a "traditional IRA." A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. You may be able to deduct some or all of your contributions to a traditional IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in your traditional IRA, including earnings, generally are not taxed until distributed to you. IRAs cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.
To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes.
Compensation does not include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation.
What's New for 2007
Modified AGI limit for traditional IRA contributions increased. For 2007, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow(er),
More than $52,000 but less than $62,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
For 2007, if you either lived with your spouse or file a joint return, and your spouse is covered by a retirement plan at work but you are not, your deduction is phased out if your modified AGI is more than $156,000 but less than $166,000. If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA
What's
New for 2008 Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2008 will be increased to the smaller of the following amounts:
$5,000, or
Your taxable compensation for the year.
If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:
$6,000, or
Your taxable compensation for the year.
Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:
More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
More than $53,000 but less than $63,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
For 2008, if you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA.
What Is a Traditional IRA?
A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA.
Who Can Set Up a Traditional IRA?
You can set up and make contributions to a traditional IRA if:
You (or, if you file a joint return, your spouse) received taxable compensation during the year, and
You were not age 70½ by the end of the year.
You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.
What's New for 2010
Due date for contributions and withdrawals. Contributions can be made to your IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Because Emancipation Day, Saturday, April 16, 2011, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, the due date for making contributions for 2010 is April 18, 2011. There is a 6% excise tax on excess contributions not withdrawn by the due date (including extensions) for your return. You will not have to pay the 6% tax if any 2010 excess contributions are withdrawn by April 18, 2011 (including extensions).
Modified AGI limit for traditional IRA contributions increased. For 2010, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
More than $89,000 but less than $109,000 for a married couple filing a joint return or a qualifying widow(er),
More than $56,000 but less than $66,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $167,000 but less than $177,000. If your modified AGI is $177,000 or more, you cannot take a deduction for contributions to a traditional IRA.
Modified AGI limit for Roth IRA contributions increased. For 2010, your Roth IRA contribution limit is reduced (phased out) in the following situations.
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $167,000. You cannot make a Roth IRA contribution if your modified AGI is $177,000 or more.
Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2010 and your modified AGI is at least $105,000. You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more.
Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.
Conversions and rollovers to Roth IRAs. The modified AGI and filing status requirements for converting and rolling over amounts to a Roth IRA are eliminated. Also, for any 2010 conversion or rollover, any amounts that would be included as income will be included in income in equal amounts in 2011 and 2012. You can choose to include the entire amount in income in 2010.
Catch-up contributions in certain employer bankruptcies. The provision for additional catch-up contributions in certain employer bankruptcies does not apply for 2010 or later years.
Qualified charitable distributions (QCDs) made in January 2011. The provision for QCDs has been extended for 2010 and 2011. If you make a QCD in January 2011, you can elect to have it treated as made in 2010.
Can I rollover the pre-tax part of my 401k to a Traditional IRA and the after-tax dollars to a Roth IRA?
News and Articles from Bara Business Center
 Podcasts by Greg To listen to my audio podcasts on helpful tips for everyone regarding income tax deductions, simply click the podcast icon here.  You can
play or download any of the podcasts for free,
or get them at iTunes.Hiding Income Offshore Not reporting income from foreign sources may be a crime. The IRS and its international partners are pursuing those who hide income or assets offshore to evade taxes. Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established in foreign jurisdictions. The goal is to ensure U.S. citizens and residents are accurately reporting their income and paying the correct tax. Many United States (U.S.) citizens and resident aliens receive income from foreign sources. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with accounts in Liechtenstein. The interest of the IRS, however, extends beyond accounts in Liechtenstein to accounts anywhere in the world. |
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Keeping Good Tax Records You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience. Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return: Bills, Credit card and other receipts, Invoices, Mileage logs, Canceled, imaged or substitute checks or any other proof of payment, and ... Any other records to support deductions or credits you claim on your return. Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return. |
