Most individual taxpayers can reduce their taxable income by contributing money to a traditional retirement account (IRA). Contributions to IRAs can be made as late as the first due date of the individual’s income tax return and can be considered retroactive to the previous tax year.
By contributing money to your Traditional IRA before April 15th (or filing your individual tax return, whichever is sooner) most taxpayers get to deduct the contribution amount against last year’s income. The Limits for the IRA deduction are as follows:
If you are 49 years of age or younger, then you can contribute $5,000.
If you are 50 or older, then you can contribute $6,000.
To be eligible to fund an IRA for a particular year, you must have earned income. For IRA purposes only, earned income consists of wages, self-employment income, and alimony. You must also be under 70.5 years of age at the time of the contribution.
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The deduction is claimed on your regular Form 1040 of Form 1040A. You do not have to itemize to report this deduction.
The amount of the deduction is phased out for taxpayers who have modified adjusted gross income (MAGI) of more than certain amounts. For single taxpayers and heads of households the MAGI limits are between $56,000 to $66,000. For Married filing jointly, the MAGI limits are between $90,000 to $110,000.
If you are looking to fund your retirement and you meet the above standards, then you should look at making the contribution now so you can take the deduction now instead of waiting until later in the year. The benefit of the deduction now is the time value of money and your use for the remainder of the year.
If you have questions on the above, please do not hesitate to contact my office.