IRAs And Your 2016 Tax Return
taxpayers often have questions about Individual Retirement
Arrangements or IRAs.
Common questions include: When can a person contribute, how
does an IRA impact taxes, and what are other common rules.
If you have questions, here's what you need to know:
Rules. Taxpayers must be under age 70 1/2 at the
end of the tax year to contribute to a traditional IRA. There
is no age limit to contribute to a Roth IRA.
Rules. A taxpayer must have taxable compensation to
contribute to an IRA. This includes income from wages and
salaries and net self-employment income. It also includes
tips, commissions, bonuses and alimony. If a taxpayer is
married and files a joint tax return, only one spouse needs to
have compensation in most cases.
to Contribute. Taxpayers may contribute to an IRA
at any time during the year. To count for 2016, a person must
contribute by the due date of their tax return. This does not
include extensions. This means most people must contribute by
April 18, 2017. Taxpayers who contribute between January 1 and
April 18 need to advise the plan sponsor of year they wish to
apply the contribution (2016 or 2017).
Limits. Generally, the most a taxpayer can
contribute to their IRA for 2016 is the smaller of either
their taxable compensation for the year or $5,500. If the
taxpayer is 50 or older at the end of 2016, the maximum amount
they may contribute increases to $6,500. If a person
contributes more than these limits, an additional tax will
apply. The additional tax is six percent of the excess amount
contributed that is in their account at the end of the year.
Rules. Normally taxpayers don't pay income tax on
funds in a traditional IRA until they start taking
distributions from it. Qualified distributions from a Roth IRA
Rules. Taxpayers may be able to deduct some or all
of their contributions to their traditional IRA. Please
contact the office for details.
Credit. A taxpayer who contributes to an IRA may
also qualify for the Saver's Credit. It can reduce a person's
taxes up to $2,000 if they file a joint return. Use Form 8880,
Credit for Qualified Retirement Savings Contributions, to
claim the credit. A taxpayer may file either Form 1040A or
1040 to claim the Saver's Credit.
of Retirement Plan and IRA Distributions. When
taxpayers roll over a retirement plan distribution, they
generally don't pay tax on it until they withdraw it from the
new plan. If they don't roll over their distribution, it will
be taxable (other than qualified Roth distributions and any
amounts already taxed). The payment may also be subject to
additional tax unless the taxpayer is eligible for one of the
exceptions to the 10 percent additional tax on early
If a taxpayer's employer does not offer a retirement plan,
they may want to consider a myRA. This is a retirement savings
plan offered by the U.S. Department of the Treasury. It's safe
and affordable. Taxpayers may also direct deposit their entire
refund or a portion of it into an existing myRA.
a copy of your tax return. Beginning in 2017, you
may need your Adjusted Gross Income (AGI) amount from a
prior-year tax return to verify your identity. You can find
your AGI on line 37 of your 2015 tax return. If you don't have
a copy of your tax return and you need assistance obtaining a
copy of last year's tax return, don't hesitate to call.
If you have any questions about IRAs and your tax return for
(business or personal), don't hesitate to call the office. Help is just a phone call away at
(480) 641-8100. Remember
you can also call our offices if you have any questions about
these or any other accounting, tax, financial planning,
payroll, cash flow or insurance related issues.
Regards, Jeanine Taylor, Partner
CFO Financial Services LLC
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