Traditional IRAs
Deadline To Establish An IRA
An IRA can be established and funded at any time between January 1 of the current year
up to and through the date the individual income tax return is due; i.e., April 15 of the
following year. Extensions for filing the tax return do not extend this period.
Can Deduction Be Taken Prior To Investment Of The Funds?
Yes! This, in effect, permits an individual to file his return early in the year; e.g.,
January, and use his or her tax refund to make the actual contribution prior to April 15.
Types Of Arrangements Permitted
There are currently two types of Traditional IRAs:
- Individual Retirement Accounts: A trust with a corporate trustee.
- Individual Retirement Annuities: This is a special annuity issued by an insurance
company.
Contribution And Deduction Limits
A wage earner may contribute and deduct the lesser of $4,000 or 100% of earned income
for the year. If the wage earner is married, an additional $4,000 may be contributed and
deducted on behalf of the nonworking spouse, using a "spousal" IRA account.
Those age 50 or more can contribute an additional $1,000 per year.
Other Retirement Plans May Reduce, Or Eliminate Deductions
Taxpayers (or their spouses) who participate in an employer's plan can make fully
deductible IRA contributionsif their modified djusted gross income (MAGI) is below $83,000
if married filing jointly, $52,000 if single, and $10,000 if married filing separately. If
MAGI exceeds these amounts, the contribution limit is then reduced by a formula which
eventually permits no deduction.
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