Carol McAtee & Associates, CPAs
. . . . .continued from last week’s post,
Never too Early to Start Thinking About Filing the Next Tax Return
Consider Making IRA Contributions
Contributions to an Individual Retirement Account (IRA) are a good way to save for your future. The maximum contribution for 2015 is $5,500. Anyone who has “earned income” such as wages, salary and self employment is eligible to make the IRA contribution. The taxpayer who also is covered by an employer retirement plan with a modified AGI below specified thresholds based on their filing status has the opportunity to deduct their contributions therefore paying less tax in the current year. Again the ability to deduct your IRA contribution is based on levels of income if you are also in an employer retirement plan. For a married couple filing a joint return if your income is less than $98,000 then you can deduct $5,500 in full for both you and your spouse even if only one of you has earned income. Therefore with a minimum of $11,000 of total earned income you could deduct it in full. As your modified AGI increases up to $118,000 you begin to lose the ability to deduct the contribution. However, the excess amount can be contributed to a Roth IRA which is a nonductible contribution but the growth will never be included in your gross income when you take a future distribution.
If you are age 50 or older on the last day of the tax year, then you can contribute an additional $1,000 for what is called the “catch up” contribution. This will increase your deduction to $6,500 and for a married couple filing a joint return the total amount would be $13,000.
For taxpayers whose filing status is single or head of household you are eligible for a $5,500 deductible IRA when your modified AGI is $61,000 or less. When you have an income in excess of $71,000, you can no longer make a deductible IRA. Between $61,000 and $71,000 the $5,500 is phased out; but, again, you should contact me about the benefits of a Roth IRA contribution.
There is a special rule only for married couples who file a joint return where one spouse either does not have any earned income or has earned income but is not eligible to participate in an employer’s pension plan. If this is your situation, then for 2015 you can have a $5,500 deductible IRA contribution when your joint modified AGI is $183,000 or less. The $5,500 maximum deductible contribution decreases as your income grows between $183,000 and $193,000. And, again, if you and/or your spouse are age 50 or older on the last day of the tax year, then you can contribute an additional $1,000 for each qualifying spouse for the “catch up” contribution.
Once again, these income thresholds for traditional/deductible IRAs are for taxpayers covered by an employer retirement plan. Otherwise, the income thresholds do not apply.
If you want total tax-free growth in an IRA, then let’s discuss a contribution to a Roth IRA which is available to single taxpayers whose modified AGI is $116,000 or less with a phase-out up to $131,000. For married couples filing a joint return, the threshold is between $183,000 and $193,000 of modified AGI. These income thresholds apply whether or not the taxpayer is covered by an employer retirement plan.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
