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Traditional IRA Contribution and Deduction Limits - 2012

 

Learn about the Effect of Modified AGI on Deductible Contributions:  

  

You may make a contribution for your 2012 Traditional or Roth IRA at any time prior to the 2012 IRS tax filing deadline which is on April 15, 2013.  

(Your account must be funded by this date!)

 

  

If You ARE Covered by a Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. 

If Your Filing Status Is...

And Your Modified AGI Is... Then You Can Take...
Single or
Head of Household

$58,000 or less

a full deduction up to the amount of your contribution limit

more than $58,000 but less than $68,000

a partial deduction

$68,000 or more

no deduction

Married Filing Jointly or Qualifying Widow(er)

$92,000 or less

a full deduction up to the amount of your contribution limit

 more than $92,000 but less than $112,000

  a partial deduction

 $112,000 or more

 no deduction

Married Filing Separately

 less than $10,000

  a partial deduction

 $10,000 or more

 no deduction

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "single" filing status.     (View 2013 contribution and deduction limits/information for Traditional IRAs via this link.)
 

 

If You are NOT Covered by a Retirement Plan at Work

If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

If Your Filing Status Is...

And Your Modified AGI Is... Then You Can Take...
Single, Head of Household or Qualifying Widow(er)

 any amount

a full deduction up to the amount of your contribution limit

Married Filing Jointly or Separately with a spouse who is not covered by a plan at work

 any amount

a full deduction up to the amount of your contribution limit

Married Filing Jointly with a spouse who is covered by a plan at work

$173,000 or less

a full deduction up to the amount of your contribution limit

more than $173,000 but less than $183,000

a partial deduction

$183,000 or more

no deduction

Married Filing Separately with a spouse who is covered by a plan at work

 less than $10,000

 a partial deduction

 $10,000 or more

 no deduction

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "single" filing status.     (View 2013 contribution and deduction limits/information for Traditional IRAs via this link.)
 

Please view IRS Publication 590 for more details and speak with your tax advisor prior to making any decisions.

What is a Traditional IRA?

A Traditional IRA is any Individual Retirement Arrangement that is not a RothSEPSIMPLE, or Qualified Plan (including Individual 401(k), or a Coverdell ESA.

The key benefit of a Traditional IRA is tax-deferred growth. Your investments grow free of federal income taxes until money is withdrawn.

You can set up 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 70 1/2 by the end of the year.

You can have a Traditional IRA whether or not you are covered by an additional retirement plan.

However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer retirement plan.

Eventually, you must pay federal income tax on investment earnings and any IRA contributions that you have deducted. Please consult your tax and/or legal advisor for details. For more information visit www.irs.gov.

Why participate in a Traditional IRA?

Contributions to a traditional IRA may be deductible

No limit on the number of contributions per year

No limit on the number of IRA accounts

Earnings in an IRA accumulate tax free until distributed

IRA accounts can be used as a "channel" for distributions from a qualified plan

Any participant under the age of 70 1/2 with compensation can participate in a traditional IRA

Note: Due to changing laws, it is always best to review your individual circumstances with a qualified Tax Advisor.

Traditional IRA Contribution Limits 

You may make a contribution for your 2012 Traditional or Roth IRA at any time prior to the 2012 IRS tax filing deadline which is April 15, 2013.  (Your account must be funded or have proof of postmark by this date!)

                                          Under Age 50                       Over Age 50 (Catch-up Contributions)

2012* **

$5,000

$1,000

$6,000

2013* **

$5,500

$1,000

$6,500

 

 ** Or your taxable compensation for the year.

 * Effective for tax year 2002 and beyond, for participants who are eligible to make an IRA contribution and have attained the age of 50 before the end of the taxable year, the participant can make a "catch-up" contribution in addition to the normal contribution amount as shown in the table above. The catch-up contribution was $500 from 2002-2005. For the year 2006 and beyond, the catch-up contribution limit will be $1000. The maximum contribution cannot exceed 100% of actual compensation.  Learn more about COLA Increases for Dollar Limitations on Benefits and Contributions from the IRS.

Please note that the IRA contribution limit does not apply to:

 

 

Back to the top of Traditional IRAs 

 

Traditional IRA Deductibility Limits

If the IRA participant is not eligible to participate in an employer sponsored plan, the IRA contribution is fully deductible, regardless of the participant's income.  This includes: singlehead of householdor qualifying widow(er) as well as married filing jointly or separately with a spouse who is not covered by a plan at work.

If the IRA participant is an "active participant", then the IRA deductibility is determined by the participant's adjusted gross income. The table above shows the deductibility limits for active participants for tax years 2012 and 2013.  This includes married filing jointly with a spouse who is covered by a plan at work

Note: Deductibility limits can be confusing, so it is always wise to review your specific situation with your tax advisor.

*Please note that if you are married and file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "single" filing status.

If neither spouse is covered by a retirement plan at work, there is no AGI limit. If your filing status is single, head of household, qualifying widow(er), married filing jointly or separately with a spouse who is not covered by a plan at work, then there is no AGI limit and you may take a full deduction. See IRS Publication 590 for more information.

Traditional IRA Non-Deductible Contributions

Non-deductible contributions are contributions that exceed the deductibility limit but not the contribution limits. The deductibility limits only affect a participant's ability to take a deduction, not his ability to contribute. Any person under the age of 70 1/2 with compensation can contribute to a Traditional IRA, regardless of compensation.

Non-deductible contributions can earn tax-deferred income. Only the earnings will be taxable to the IRA participant when distributed. Upon distribution, the non-deductible contributions are recovered on a pro-rata basis.

The participant must inform the IRS that he has made a non-deductible contribution by filing IRS Form 8606 with his tax return.

An IRA participant may remove his non-deductible contributions (plus any applicable earnings) for a given tax year prior to the tax filing deadline (including extensions) for that year. Only the earnings will be taxable.

Important Things to Remember:

Contribution Limits: There is no minimum contribution limit per the IRS. However, most brokerage firms, mutual fund and investment management companies do require account minimums so please be sure to inquire prior to investing.

The maximum contribution amount for an individual is the lesser of 100% of compensation or $5,000 per year (for 2012) and $5,500 (for 2013). Plus any catch-up contributions

For a married couple with a non-working spouse (or a working spouse who is not covered by an employer sponsored plan), the maximum contribution for the couple is the lesser of 100% of compensation or $10,000, with no more than $5,000 contributed for each individual (for 2012) and $11,000, with no more than $6,5000 for each individual (for 2012). Separate IRAs must be established for each spouse, and the couple must file a joint tax return. The catch-up contribution limit for 2012 and 2013 to a combined total of $13,000 ($1,000 for each spouse).

Traditional IRA Rollover Contributions

Talk with an IRA Rollover Specialist Today Call 1-800-50-PLACE

Regular IRA Rollover

A distribution from a qualified retirement account (Qualified Plan SIMPLE SEP, 457, 403(b) and Traditional IRA) that is redeposited into the same IRA or another IRA within 60 days of the date of distribution is considered a rollover contribution. If the entire amount of the distribution is redeposited, there will be no taxable distribution. If only part of the distribution is redeposited, the amount that is not redeposited will be subject to taxes and possibly penalties.  (For information on Roth IRAs please visit our  Roth IRA's page.)

Important Things to Remember about IRA Rollovers:

For assets to be eligible for rollover they must have come from a retirement account that has had no rollover contributions, nor distributions within the prior 12 months.

An IRA participant may complete only one rollover of the same assets within a 12-month period.

An IRA participant may rollover any assets, either cash or non-cash, but he must redeposit the same assets that were originally distributed.

An IRA participant may not rollover a required minimum distribution.

A rollover is a reportable transaction. The distribution is reported on IRS Form 1099R. The rollover contribution (redeposit) is reported on IRS Form 5498.

 

Talk with an IRA Rollover Specialist Today Call 1-800-50-PLACE

Direct Rollover

The deposit of assets from a qualified plan directly into an IRA account (or the subsequent deposit of these assets into a successor qualified plan), without receipt by the IRA participant, is considered a direct rollover.

Things to Remember About Direct Rollovers:

By completing a direct rollover of assets from a qualified plan, the IRA participant can avoid the mandatory 20% withholding on distributions from a qualified plan.

By completing a direct rollover of assets from a qualified plan, the IRA participant can avoid the mandatory 20% withholding on distributions from a qualified plan.

The IRA account that holds direct rollover assets is often referred to as a "conduit IRA".

IRA Distributions

Earnings in an IRA account can accumulate tax-free until they are distributed to the IRA participant. Once distributed, earnings and deductible contributions are taxed as ordinary income.

Because the purpose of an IRA account is to provide a retirement income, the IRS imposes an additional tax of 10% of the amount of the distribution if the IRA participant takes a distribution before the age of 59 1/2. The IRS does allow several exceptions to this 10% additional tax, including:

Distributions to the IRA participant's beneficiaries upon the participant's death.

The disability of the participant.

Distributions that are taken annually as a series of substantially equal payments (based on the participant's life expectancy) until the participant reaches the age of 59 1/2 or until 5 years have elapsed, whichever is longer.

Qualified first time home purchase.

Qualified medical expenses in excess of 7 1/2% of AGI (adjusted gross income).

Qualified medical insurance premiums during a period of unemployment.

Qualified educational expenses.

As the result of an IRS tax levy.

Distributions are reported to the IRS on Form 1099R.

Withholding

All distributions from an IRA account are subject to 10% Federal withholding tax unless the IRA participant elects to waive this withholding. The IRA withholding waiver election must be in writing, and will stay in effect until the IRA participant revokes the election.

Basis of In-Kind Distributions: The basis of in-kind distributions from an IRA account is the fair market value of the assets on the date of distribution. In-kind distributions made on the FSI SDIRA system are valued at the asset's prior night closing price.

Required Minimum Distributions (RMD) at Age 70 1/2

The IRA account is intended to provide a retirement income for the participant, not to provide a death benefit for the participant's beneficiaries. According to Internal Revenue Service (IRS) regulations, you must begin to take required minimum distributions (RMD) from your retirement account once you attain the age of 70 1/2.

The amount of the distribution is determined by dividing the prior end of year fair market value by a life expectancy factor. For tax purposes, required minimum distributions are included in the participant's gross income, and the rules for recovery of non-deductible contributions apply.

These distributions must commence by April 1st of the year following the year in which you attain the age of 70 1/2, and must be taken by December 31st each year thereafter.

The RMD is based upon your attained age, a life expectancy factor, and the prior year-end value of the retirement account. The IRS will impose a 50% penalty on the amount of the required minimum distribution that is not distributed to the IRA participant.

Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor. 


Call us today at 1-800-50-PLACE (1-800-507-5223, 919-719-7200) to get started!
 


 (Please be sure to check with your tax and/or legal advisor prior to making any contributions, withdrawals or other changes to your retirement account.  Place Trade Financial, Inc. does not offer tax or legal advice.  Information provided by Place Trade is for educational purposes and should not be considered as tax or legal advice under any circumstances.)     

  

 

Learn about IRAs, Traditional IRAs, Roth IRAs, Minimize taxes with qualified contributions to your retirement account.  Make "Catch-up contributions" if you are over 50.  Learn about income limits/deduction limits for Single, Head of household, Qualified widow or widower, married filing jointly, married filing separately, spouse not covered by plan at work, spouse, no plan at work, plan at work, lived with spouse, agi, adjusted gross income, ira deduction, full deduction, partial deductions and so much more!

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SEP IRA

SIMPLE IRA

Traditional IRA

Qualified Plans

Rollover IRAs

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