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.
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
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 70 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?
"If you have questions ... contact our office. We're here to assist.
"
Gregory J. Cook, EA, CPA+
Accredited Tax Advisor
Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants
contact:
secure email 1-800-551-6253 voice mail 117
Cook and Co., Enrolled Agents are licensed by the U.S. Treasury Department
to represent taxpayers before the Internal Revenue Service (IRS). Greg Cook is a
Certified Public Accountant (CPA) licensed by the states of Alabama and Tennessee.
