Reporting IRA Contributions on Taxes
For most, IRA contributions can reduce their tax burden. However, if you’re one of the thousands of taxpayers who file before April 15, you could be losing out. In many cases, you can contribute to your IRA up through April 15 and still qualify for the tax credit. You must specify the tax year you are contributing to if you make a contribution after December 31.
Be Wary of Earnings vs. Contributions
Those who have an IRA should always be aware of the limitations on how much can be deposited on an annual basis. Keep in mind, an IRA contribution can only be made if you have income that supports such a contribution. For example, if you are self-employed and your net income is $5,000 you cannot contribute more than that amount to an IRA. Pension income is not considered income for the purposes of IRA contributions.
Many people are unaware that unemployed spouses are eligible for spousal contributions; these are contributions made by a working spouse to an IRA for a stay-at-home spouse. The caveat is the spouses must be filing a joint tax return. Additionally, children who are working can also make contributions to an IRA up to the maximum amount allowed by the IRS provided their earnings support such a contribution. For some young people, savings accounts may be more beneficial.
Being Aware of ROTH IRA Limits
Given the ROTH is still relatively new, many retirement savers are unaware there are maximum limits on how much they can earn and still fund a ROTH account. For example, during the 2015 tax year, a single taxpayer could not earn more than $131,000 and joint filers could not earn more than $191,000. This can cause serious problems since the IRS could assess a penalty for contributions if you make too much.
There are numerous pitfalls associated with IRA accounts; for example, inherited IRAs and 401(k) plans that are rolled over must be put into special accounts. Once you have reached retirement age, there are other dangers such as not taking required minimum distributions (RMDs) on time or in the proper amount.
Whether you are currently planning on opening an individual retirement account, need help with rolling over a retirement plan from a prior employer or you are self-employed and are uncertain about which options are best for your needs, contact your Member Financial Representative at Oklahoma Central Credit Union. We’re here to help you decide which retirement plans are most appropriate for your needs and help you avoid some of the potential pitfalls associated with retirement plans.