Rev. date: 08/2006
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 may be able to deduct some or all of your contributions to your IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's 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.
Please refer to Publication 590
, Individual Retirement Arrangements (IRAs)
, for information on the amounts you will be eligible to contribute to your IRA account.
Figure your deduction using the worksheets in the Instructions 1040 (General Inst.)
, Instructions 1040-A
or in Publication 590. You cannot claim an IRA deduction on Form 1040EZ; you must use either Form 1040-A
or Form 1040
. If you made nondeductible contributions to a traditional IRA you would need to attach Form 8606
, Nondeductible IRA's
. Use Form 8880
, Credit for Qualified Retirement Savings Contributions
, to determine whether you are also eligible for a tax credit. Enter the amount of the credit on either Form 1040A or Form 1040. You cannot use Form 1040EZ to claim this credit.
The deadline for contributions to a traditional IRA for the year is the due date of your return, not including any extensions of time to file.
Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made only deductible contributions, withdrawals are fully taxable. Use Form 8606 to figure the taxable portion of withdrawals.
Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70 1/2. These additional taxes are figured and reported on Form 5329
. Refer to Instructions 5329
for exceptions to the additional taxes. For information on Roth IRA contributions or distributions, refer to Tax Topic 309
. For information on conversions from a traditional IRA to a Roth IRA, refer to Publication 590.