Contributions can be made to your traditional 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. See When Can Contributions Be Made? in this chapter.

There is a 6% excise tax on excess contributions not withdrawn by the due date (including extensions) for your return. You will not have to pay the 6% tax if any 2010 excess contributions are withdrawn by April 18, 2011 (including extensions). See Excess Contributions under What Acts Result in Penalties or Additional Taxes? in this chapter.

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.

For 2010, 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. See How Much Can You Deduct? in this chapter.

Beginning in 2010, the modified AGI and filing status requirements for converting a traditional IRA to a Roth IRA are eliminated.

Also, for any 2010 conversion, 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.

The provision for additional catch-up contributions in certain employer bankruptcies does not apply for 2010 or later years.

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. See January 2011 QCDs later for more information.

For 2011, 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 $90,000 but less than $110,000 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 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 modified AGI is more than $169,000 but less than $179,000. If your modified AGI is $179,000 or more, you cannot take a deduction for contributions to a traditional IRA.

This chapter discusses the original IRA. In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a "traditional IRA." A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. The following are two advantages of a traditional IRA:

• You may be able to deduct some or all of your contributions to it, depending on your circumstances.
• Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed.

You can open 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 701/2 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. See How Much Can You Deduct, later.

If both you and your spouse have compensation and are under age 701/2, each of you can open an IRA. You cannot both participate in the same IRA. If you file a joint return, only one of you needs to have compensation.

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

An amount you receive that is a percentage of profits or sales price is compensation.

If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

• The deduction for contributions made on your behalf to retirement plans, and
• The deduction allowed for one-half of your self-employment taxes.

Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs.

You must add back any self-employed health insurance deduction you used in figuring the amount to enter on Schedule SE, line 3.

If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation.

For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance.

If you were a member of the U.S. Armed Forces, compensation includes any nontaxable combat pay you received. This amount should be reported in box 12 of your 2010 Form W-2 with code Q.

Compensation does not include any of the following items.

• Earnings and profits from property, such as rental income, interest income, and dividend income.
• Pension or annuity income.
• Deferred compensation received (compensation payments postponed from a past year).
• Income from a partnership for which you do not provide services that are a material income-producing factor.
• Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.
• Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.