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April 17, 2018 is the Tax Day for 2018 for filing the 2017 federal tax returns, but there is another piece of information that can be of value to you concerning this date.
The IRS reminded taxpayers recently that it’s not too late to contribute to an Individual Retirement Arrangement and still claim it on a 2017 tax return.
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Anyone with an IRA may be eligible for a tax credit or deduction on their 2017 tax return if they make contributions by April 17, 2018.
Below are a few facts that you are probably aware of, if not, they should be even more welcome.
An Individual Retirement Arrangement (or account) 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.
Contributions to a traditional IRA are often tax deductible, but distributions are generally taxable. Contributions to a Roth IRA are not deductible, but 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 Saver’s Credit.
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- Generally, if you are eligible, you 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 701⁄2 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 you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs up to the contribution limit or 100 percent of the your compensation, whichever is less.
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| For 2017, if you are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced if your modified adjusted gross income is between: |
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$0 and $10,000; married filing separately; |
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$62,000 and $72,000; single and head of household; |
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$99,000 to $119,000; married filing jointly or a qualifying widow(er); |
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$186,000 to $196,000; married filing jointly where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered.
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| The deduction for contributions to a traditional IRA is claimed on Form 1040, Line 32, or Form 1040A, Line 17. Any nondeductible contributions to a traditional IRA must be reported on Form 8606. |
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| Form 8606 is used to report nondeductible contributions you made to traditional IRAs; distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs; conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs; and distributions from Roth IRAs. |
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| Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose modified adjusted gross income is above a certain level: |
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$0 to $10,000; married filing separately; |
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$118,000 to $133,000; single and head of household; |
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$186,000 to $196,000; married filing jointly. |
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Also known as the Retirement Savings Contributions Credit, 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 your refund or reduce the taxes you 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. |
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| For 2017, the income limit is: |
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$31,000; single and married filing separate; |
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$46,500; head of household; |
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$62,000; married filing jointly. |
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| You're eligible for the credit if you're: |
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Age 18 or older; |
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Not a full-time student; and |
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Not claimed as a dependent on another person’s return. |
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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 (reported on your Form 1040 or 1040A).
You should use Form 8880 to claim the Saver’s Credit. Its instructions have details on figuring the credit correctly.
The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified
retirement and 403(b) plans. |
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Rollover contributions (money that you moved from another retirement plan or IRA) aren’t eligible for the Saver’s Credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.
You should take advantage of this regulation and any other claims you may be entitled to. The best way to make sure os this is to enroll help from a tax professional. |
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