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Do tax amendment 1. Do tax amendment   Traditional IRAs Table of Contents What's New for 2013 What's New for 2014 Introduction Who Can Open a Traditional IRA?What Is Compensation? When Can a Traditional IRA Be Opened? How Can a Traditional IRA Be Opened?Individual Retirement Account Individual Retirement Annuity Individual Retirement Bonds Simplified Employee Pension (SEP) Employer and Employee Association Trust Accounts Required Disclosures How Much Can Be Contributed?Limit. Do tax amendment When repayment contributions can be made. Do tax amendment No deduction. Do tax amendment Reserve component. Do tax amendment Figuring your IRA deduction. Do tax amendment Reporting the repayment. Do tax amendment Example. Do tax amendment General Limit Kay Bailey Hutchison Spousal IRA Limit Filing Status Less Than Maximum Contributions More Than Maximum Contributions When Can Contributions Be Made? How Much Can You Deduct?Kay Bailey Hutchison Spousal IRA. Do tax amendment Are You Covered by an Employer Plan? Limit if Covered by Employer Plan Reporting Deductible Contributions Nondeductible Contributions Examples — Worksheet for Reduced IRA Deduction for 2013 What if You Inherit an IRA?Treating it as your own. Do tax amendment Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. Do tax amendment Trustee-to-Trustee Transfer Rollovers Transfers Incident To Divorce Converting From Any Traditional IRA Into a Roth IRA Recharacterizations When Can You Withdraw or Use Assets?Contributions Returned Before Due Date of Return When Must You Withdraw Assets? (Required Minimum Distributions)IRA Owners IRA Beneficiaries Which Table Do You Use To Determine Your Required Minimum Distribution? What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions Are Distributions Taxable?January 2013 QCDs treated as made in 2012. Do tax amendment 2013 Reporting. Do tax amendment Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. Do tax amendment One-time transfer. Do tax amendment Testing period rules apply. Do tax amendment More information. Do tax amendment Distributions Fully or Partly Taxable Figuring the Nontaxable and Taxable Amounts Recognizing Losses on Traditional IRA Investments Other Special IRA Distribution Situations Reporting and Withholding Requirements for Taxable Amounts What Acts Result in Penalties or Additional Taxes?Prohibited Transactions Investment in Collectibles Excess Contributions Early Distributions Excess Accumulations (Insufficient Distributions) Reporting Additional Taxes What's New for 2013 Traditional IRA contribution and deduction limit. Do tax amendment  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Do tax amendment If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Do tax amendment For more information, see How Much Can Be Contributed? in this chapter. Do tax amendment Modified AGI limit for traditional IRA contributions increased. Do tax amendment  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Do tax amendment If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Do tax amendment If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Do tax amendment See How Much Can You Deduct? in this chapter. Do tax amendment Net Investment Income Tax. Do tax amendment  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Do tax amendment However, these distributions are taken into account when determining the modified adjusted gross income threshold. Do tax amendment Distributions from a nonqualified retirement plan are included in net investment income. Do tax amendment See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Do tax amendment What's New for 2014 Modified AGI limit for traditional IRA contributions increased. Do tax amendment  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Do tax amendment If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Do tax amendment If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. Do tax amendment Introduction This chapter discusses the original IRA. Do tax amendment In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Do tax amendment ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Do tax amendment The following are two advantages of a traditional IRA: You may be able to deduct some or all of your contributions to it, depending on your circumstances. Do tax amendment Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Do tax amendment Who Can Open a Traditional IRA? You can open 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 70½ by the end of the year. Do tax amendment You can have a traditional IRA whether or not you are covered by any other retirement plan. Do tax amendment However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. Do tax amendment See How Much Can You Deduct , later. Do tax amendment Both spouses have compensation. Do tax amendment   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. Do tax amendment You cannot both participate in the same IRA. Do tax amendment If you file a joint return, only one of you needs to have compensation. Do tax amendment What Is Compensation? Generally, compensation is what you earn from working. Do tax amendment For a summary of what compensation does and does not include, see Table 1-1. Do tax amendment Compensation includes all of the items discussed next (even if you have more than one type). Do tax amendment Wages, salaries, etc. Do tax amendment   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Do tax amendment The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Do tax amendment Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. Do tax amendment Commissions. Do tax amendment   An amount you receive that is a percentage of profits or sales price is compensation. Do tax amendment Self-employment income. Do tax amendment   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deduction allowed for the deductible part of your self-employment taxes. Do tax amendment   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Do tax amendment Self-employment loss. Do tax amendment   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Do tax amendment Alimony and separate maintenance. Do tax amendment   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. Do tax amendment Nontaxable combat pay. Do tax amendment   If you were a member of the U. Do tax amendment S. Do tax amendment Armed Forces, compensation includes any nontaxable combat pay you received. Do tax amendment This amount should be reported in box 12 of your 2013 Form W-2 with code Q. Do tax amendment Table 1-1. Do tax amendment Compensation for Purposes of an IRA Includes . Do tax amendment . Do tax amendment . Do tax amendment Does not include . Do tax amendment . Do tax amendment . Do tax amendment   earnings and profits from property. Do tax amendment wages, salaries, etc. Do tax amendment     interest and dividend income. Do tax amendment commissions. Do tax amendment     pension or annuity income. Do tax amendment self-employment income. Do tax amendment     deferred compensation. Do tax amendment alimony and separate maintenance. Do tax amendment     income from certain  partnerships. Do tax amendment nontaxable combat pay. Do tax amendment     any amounts you exclude from income. Do tax amendment     What Is Not Compensation? Compensation does not include any of the following items. Do tax amendment Earnings and profits from property, such as rental income, interest income, and dividend income. Do tax amendment Pension or annuity income. Do tax amendment Deferred compensation received (compensation payments postponed from a past year). Do tax amendment Income from a partnership for which you do not provide services that are a material income-producing factor. Do tax amendment Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Do tax amendment Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Do tax amendment When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Do tax amendment However, the time for making contributions for any year is limited. Do tax amendment See When Can Contributions Be Made , later. Do tax amendment How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. Do tax amendment You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Do tax amendment You can also open an IRA through your stockbroker. Do tax amendment Any IRA must meet Internal Revenue Code requirements. Do tax amendment The requirements for the various arrangements are discussed below. Do tax amendment Kinds of traditional IRAs. Do tax amendment   Your traditional IRA can be an individual retirement account or annuity. Do tax amendment It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Do tax amendment Individual Retirement Account An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. Do tax amendment The account is created by a written document. Do tax amendment The document must show that the account meets all of the following requirements. Do tax amendment The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. Do tax amendment The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. Do tax amendment However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. Do tax amendment Contributions, except for rollover contributions, must be in cash. Do tax amendment See Rollovers , later. Do tax amendment You must have a nonforfeitable right to the amount at all times. Do tax amendment Money in your account cannot be used to buy a life insurance policy. Do tax amendment Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. Do tax amendment You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. Do tax amendment See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Do tax amendment Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. Do tax amendment An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. Do tax amendment An individual retirement annuity must meet all the following requirements. Do tax amendment Your entire interest in the contract must be nonforfeitable. Do tax amendment The contract must provide that you cannot transfer any portion of it to any person other than the issuer. Do tax amendment There must be flexible premiums so that if your compensation changes, your payment can also change. Do tax amendment This provision applies to contracts issued after November 6, 1978. Do tax amendment The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the refund. Do tax amendment Distributions must begin by April 1 of the year following the year in which you reach age 70½. Do tax amendment See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Do tax amendment Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. Do tax amendment The bonds have the following features. Do tax amendment They stop earning interest when you reach age 70½. Do tax amendment If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. Do tax amendment You cannot transfer the bonds. Do tax amendment If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. Do tax amendment See Age 59½ Rule under Early Distributions, later. Do tax amendment You can roll over redemption proceeds into IRAs. Do tax amendment Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Do tax amendment Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. Do tax amendment See Publication 560 for more information about SEPs. Do tax amendment Employer and Employee Association Trust Accounts Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. Do tax amendment The requirements for individual retirement accounts apply to these traditional IRAs. Do tax amendment Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. Do tax amendment However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. Do tax amendment The disclosure statement must explain certain items in plain language. Do tax amendment For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. Do tax amendment This explanation must appear at the beginning of the disclosure statement. Do tax amendment If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. Do tax amendment The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. Do tax amendment These requirements apply to all sponsors. Do tax amendment How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Do tax amendment These limits and rules are explained below. Do tax amendment Community property laws. Do tax amendment   Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit , each spouse figures his or her limit separately, using his or her own compensation. Do tax amendment This is the rule even in states with community property laws. Do tax amendment Brokers' commissions. Do tax amendment   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Do tax amendment For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. Do tax amendment Trustees' fees. Do tax amendment   Trustees' administrative fees are not subject to the contribution limit. Do tax amendment For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. Do tax amendment Qualified reservist repayments. Do tax amendment   If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined later under Early Distributions) you received. Do tax amendment You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Do tax amendment To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. Do tax amendment Limit. Do tax amendment   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. Do tax amendment When repayment contributions can be made. Do tax amendment   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. Do tax amendment No deduction. Do tax amendment   You cannot deduct qualified reservist repayments. Do tax amendment Reserve component. Do tax amendment   The term “reserve component” means the: Army National Guard of the United States, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard of the United States, Air Force Reserve, Coast Guard Reserve, or Reserve Corps of the Public Health Service. Do tax amendment Figuring your IRA deduction. Do tax amendment   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Do tax amendment Reporting the repayment. Do tax amendment   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Do tax amendment Example. Do tax amendment   In 2013, your IRA contribution limit is $5,500. Do tax amendment However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. Do tax amendment You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). Do tax amendment In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. Do tax amendment   For 2013, you can contribute a total of $8,500 to your IRA. Do tax amendment This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,000; and a $3,000 qualified reservist repayment. Do tax amendment You contribute the maximum allowable for the year. Do tax amendment Since you are making a nondeductible contribution ($2,000) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,000 ($2,000 + $3,000) on line 1 of Form 8606. Do tax amendment The qualified reservist repayment is not deductible. Do tax amendment Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Do tax amendment See chapter 2 for information about Roth IRAs. Do tax amendment General Limit For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation (defined earlier) for the year. Do tax amendment Note. Do tax amendment This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Do tax amendment This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Do tax amendment (See Nondeductible Contributions , later. Do tax amendment ) Qualified reservist repayments do not affect this limit. Do tax amendment Examples. Do tax amendment George, who is 34 years old and single, earns $24,000 in 2013. Do tax amendment His IRA contributions for 2013 are limited to $5,500. Do tax amendment Danny, an unmarried college student working part time, earns $3,500 in 2013. Do tax amendment His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Do tax amendment More than one IRA. Do tax amendment   If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. Do tax amendment Annuity or endowment contracts. Do tax amendment   If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $5,500 ($6,500 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. Do tax amendment If more than this amount is contributed, the annuity or endowment contract is disqualified. Do tax amendment Kay Bailey Hutchison Spousal IRA Limit For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: $5,500 ($6,500 if you are age 50 or older), or The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Do tax amendment Your spouse's IRA contribution for the year to a traditional IRA. Do tax amendment Any contributions for the year to a Roth IRA on behalf of your spouse. Do tax amendment This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is age 50 or older or $13,000 if both of you are age 50 or older). Do tax amendment Note. Do tax amendment This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Do tax amendment Example. Do tax amendment Kristin, a full-time student with no taxable compensation, marries Carl during the year. Do tax amendment Neither of them was age 50 by the end of 2013. Do tax amendment For the year, Carl has taxable compensation of $30,000. Do tax amendment He plans to contribute (and deduct) $5,500 to a traditional IRA. Do tax amendment If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. Do tax amendment This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. Do tax amendment In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit). Do tax amendment Filing Status Generally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit , your filing status has no effect on the amount of allowable contributions to your traditional IRA. Do tax amendment However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. Do tax amendment See How Much Can You Deduct , later. Do tax amendment Example. Do tax amendment Tom and Darcy are married and both are 53. Do tax amendment They both work and each has a traditional IRA. Do tax amendment Tom earned $3,800 and Darcy earned $48,000 in 2013. Do tax amendment Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2013 if they file a joint return. Do tax amendment They can contribute up to $6,500 to Darcy's IRA. Do tax amendment If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Do tax amendment Less Than Maximum Contributions If contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference. Do tax amendment Example. Do tax amendment Rafael, who is 40, earns $30,000 in 2013. Do tax amendment Although he can contribute up to $5,500 for 2013, he contributes only $3,000. Do tax amendment After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). Do tax amendment He cannot contribute $2,500 more than the limit for any later year. Do tax amendment More Than Maximum Contributions If contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Do tax amendment However, a penalty or additional tax may apply. Do tax amendment See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. Do tax amendment When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Do tax amendment Contributions must be in the form of money (cash, check, or money order). Do tax amendment Property cannot be contributed. Do tax amendment Although property cannot be contributed, your IRA may invest in certain property. Do tax amendment For example, your IRA may purchase shares of stock. Do tax amendment For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. Do tax amendment You may be able to transfer or roll over certain property from one retirement plan to another. Do tax amendment See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . Do tax amendment You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. Do tax amendment For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). Do tax amendment Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. Do tax amendment For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. Do tax amendment See Who Can Open a Traditional IRA , earlier. Do tax amendment Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. Do tax amendment Contributions can resume for any years that you qualify. Do tax amendment Contributions must be made by due date. Do tax amendment   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Do tax amendment For most people, this means that contributions for 2013 must be made by April 15, 2014, and contributions for 2014 must be made by April 15, 2015. Do tax amendment Age 70½ rule. Do tax amendment   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Do tax amendment   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Do tax amendment If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Do tax amendment Designating year for which contribution is made. Do tax amendment   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Do tax amendment If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Do tax amendment Filing before a contribution is made. Do tax amendment    You can file your return claiming a traditional IRA contribution before the contribution is actually made. Do tax amendment Generally, the contribution must be made by the due date of your return, not including extensions. Do tax amendment Contributions not required. Do tax amendment   You do not have to contribute to your traditional IRA for every tax year, even if you can. Do tax amendment How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed . Do tax amendment However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Do tax amendment See Limit if Covered by Employer Plan , later. Do tax amendment You may be able to claim a credit for contributions to your traditional IRA. Do tax amendment For more information, see chapter 4. Do tax amendment Trustees' fees. Do tax amendment   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Do tax amendment However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Do tax amendment For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. Do tax amendment Brokers' commissions. Do tax amendment   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Do tax amendment Full deduction. Do tax amendment   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older), or 100% of your compensation. Do tax amendment   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Do tax amendment Kay Bailey Hutchison Spousal IRA. Do tax amendment   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of: $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Do tax amendment The IRA deduction for the year of the spouse with the greater compensation. Do tax amendment Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Do tax amendment Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Do tax amendment   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Do tax amendment Note. Do tax amendment If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Do tax amendment After a divorce or legal separation, you can deduct only the contributions to your own IRA. Do tax amendment Your deductions are subject to the rules for single individuals. Do tax amendment Covered by an employer retirement plan. Do tax amendment   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Do tax amendment This is discussed later under Limit if Covered by Employer Plan . Do tax amendment Limits on the amount you can deduct do not affect the amount that can be contributed. Do tax amendment Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Do tax amendment The “Retirement Plan” box should be checked if you were covered. Do tax amendment Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. Do tax amendment If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Do tax amendment Federal judges. Do tax amendment   For purposes of the IRA deduction, federal judges are covered by an employer plan. Do tax amendment For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. Do tax amendment These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Do tax amendment Tax year. Do tax amendment   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Do tax amendment For almost all people, the tax year is the calendar year. Do tax amendment Defined contribution plan. Do tax amendment   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Do tax amendment However, also see Situations in Which You Are Not Covered , later. Do tax amendment   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Do tax amendment In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. Do tax amendment The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. Do tax amendment Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Do tax amendment Example. Do tax amendment Company A has a money purchase pension plan. Do tax amendment Its plan year is from July 1 to June 30. Do tax amendment The plan provides that contributions must be allocated as of June 30. Do tax amendment Bob, an employee, leaves Company A on December 31, 2012. Do tax amendment The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. Do tax amendment Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. Do tax amendment   A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. Do tax amendment If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. Do tax amendment If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Do tax amendment Example. Do tax amendment Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. Do tax amendment The plan year runs from July 1 to June 30. Do tax amendment Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Do tax amendment Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. Do tax amendment As of June 30, 2013, no contributions were made that were allocated to the June 30, 2013, plan year, and no forfeitures had been allocated within the plan year. Do tax amendment In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. Do tax amendment On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. Do tax amendment That contribution was made on February 15, 2014. Do tax amendment Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. Do tax amendment No vested interest. Do tax amendment   If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. Do tax amendment Defined benefit plan. Do tax amendment   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Do tax amendment This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Do tax amendment   A defined benefit plan is any plan that is not a defined contribution plan. Do tax amendment In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. Do tax amendment The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Do tax amendment Defined benefit plans include pension plans and annuity plans. Do tax amendment Example. Do tax amendment Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. Do tax amendment Nick leaves Company B on December 31, 2012. Do tax amendment Because Nick is eligible to participate in the plan for its year ending June 30, 2013, he is covered by the plan for his 2013 tax year. Do tax amendment No vested interest. Do tax amendment   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Do tax amendment Situations in Which You Are Not Covered Unless you are covered by another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Do tax amendment Social security or railroad retirement. Do tax amendment   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Do tax amendment Benefits from previous employer's plan. Do tax amendment   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Do tax amendment Reservists. Do tax amendment   If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. Do tax amendment You are not covered by the plan if both of the following conditions are met. Do tax amendment The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Do tax amendment You did not serve more than 90 days on active duty during the year (not counting duty for training). Do tax amendment Volunteer firefighters. Do tax amendment   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Do tax amendment You are not covered by the plan if both of the following conditions are met. Do tax amendment The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Do tax amendment Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Do tax amendment Limit if Covered by Employer Plan As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. Do tax amendment Your deduction is also affected by how much income you had and by your filing status. Do tax amendment Your deduction may also be affected by social security benefits you received. Do tax amendment Reduced or no deduction. Do tax amendment   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Do tax amendment   Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Do tax amendment These amounts vary depending on your filing status. Do tax amendment   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . Do tax amendment Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. Do tax amendment Social Security Recipients Instead of using Table 1-2 or Table 1-3 and Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, later, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply. Do tax amendment You received social security benefits. Do tax amendment You received taxable compensation. Do tax amendment Contributions were made to your traditional IRA. Do tax amendment You or your spouse was covered by an employer retirement plan. Do tax amendment Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Do tax amendment Appendix B includes an example with filled-in worksheets to assist you. Do tax amendment Table 1-2. Do tax amendment Effect of Modified AGI1 on Deduction 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. Do tax amendment IF your filing status is . Do tax amendment . Do tax amendment . Do tax amendment AND your modified adjusted gross income (modified AGI) is . Do tax amendment . Do tax amendment . Do tax amendment THEN you can take . Do tax amendment . Do tax amendment . Do tax amendment single or head of household $59,000 or less a full deduction. Do tax amendment more than $59,000 but less than $69,000 a partial deduction. Do tax amendment $69,000 or more no deduction. Do tax amendment married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. Do tax amendment more than $95,000 but less than $115,000 a partial deduction. Do tax amendment $115,000 or more no deduction. Do tax amendment married filing separately2 less than $10,000 a partial deduction. Do tax amendment $10,000 or more no deduction. Do tax amendment 1 Modified AGI (adjusted gross income). Do tax amendment See Modified adjusted gross income (AGI) , later. Do tax amendment  2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). Do tax amendment Table 1-3. Do tax amendment Effect of Modified AGI1 on Deduction 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. Do tax amendment IF your filing status is . Do tax amendment . Do tax amendment . Do tax amendment AND your modified adjusted gross income (modified AGI) is . Do tax amendment . Do tax amendment . Do tax amendment THEN you can take . Do tax amendment . Do tax amendment . Do tax amendment single, head of household, or qualifying widow(er) any amount a full deduction. Do tax amendment married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. Do tax amendment married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. Do tax amendment more than $178,000 but less than $188,000 a partial deduction. Do tax amendment $188,000 or more no deduction. Do tax amendment married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. Do tax amendment $10,000 or more no deduction. Do tax amendment 1 Modified AGI (adjusted gross income). Do tax amendment See Modified adjusted gross income (AGI) , later. Do tax amendment  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. Do tax amendment For 2014, if you are not covered by a retirement plan at work and you are married filing jointly with a spouse who is covered by a plan at work, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Do tax amendment If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. Do tax amendment Deduction Phaseout The amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. Do tax amendment Covered by a retirement plan. Do tax amendment   If you are covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. Do tax amendment For 2014, if you are covered by a retirement plan at work, your IRA deduction will not be reduced (phased out) unless your modified AGI is: More than $60,000 but less than $70,000 for a single individual (or head of household), More than $96,000 but less than $116,000 for a married couple filing a joint return (or a qualifying widow(er)), or Less than $10,000 for a married individual filing a separate return. Do tax amendment If your spouse is covered. Do tax amendment   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. Do tax amendment Filing status. Do tax amendment   Your filing status depends primarily on your marital status. Do tax amendment For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Do tax amendment If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Do tax amendment Lived apart from spouse. Do tax amendment   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Do tax amendment Modified adjusted gross income (AGI). Do tax amendment   You can use Worksheet 1-1 to figure your modified AGI. Do tax amendment If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013 , later. Do tax amendment    Do not assume that your modified AGI is the same as your compensation. Do tax amendment Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. Do tax amendment Form 1040. Do tax amendment   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Do tax amendment IRA deduction. Do tax amendment Student loan interest deduction. Do tax amendment Tuition and fees deduction. Do tax amendment Domestic production activities deduction. Do tax amendment Foreign earned income exclusion. Do tax amendment Foreign housing exclusion or deduction. Do tax amendment Exclusion of qualified savings bond interest shown on Form 8815. Do tax amendment Exclusion of employer-provided adoption benefits shown on Form 8839. Do tax amendment This is your modified AGI. Do tax amendment Form 1040A. Do tax amendment   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Do tax amendment IRA deduction. Do tax amendment Student loan interest deduction. Do tax amendment Tuition and fees deduction. Do tax amendment Exclusion of qualified savings bond interest shown on Form 8815. Do tax amendment This is your modified AGI. Do tax amendment Form 1040NR. Do tax amendment   If you file Form 1040NR, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Do tax amendment IRA deduction. Do tax amendment Student loan interest deduction. Do tax amendment Domestic production activities deduction. Do tax amendment Exclusion of qualified savings bond interest shown on Form 8815. Do tax amendment Exclusion of employer-provided adoption benefits shown on Form 8839. Do tax amendment This is your modified AGI. Do tax amendment Income from IRA distributions. Do tax amendment   If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI. Do tax amendment Both contributions for 2013 and distributions in 2013. Do tax amendment   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Do tax amendment You received distributions in 2013 from one or more traditional IRAs, You made contributions to a traditional IRA for 2013, and Some of those contributions may be nondeductible contributions. Do tax amendment (See Nondeductible Contributions and Worksheet 1-2, later. Do tax amendment ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Do tax amendment To do this, you can use Worksheet 1-5, later. Do tax amendment   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. Do tax amendment How To Figure Your Reduced IRA Deduction If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013. Do tax amendment The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. Do tax amendment If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. Do tax amendment Note. Do tax amendment If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Do tax amendment Worksheet 1-1. Do tax amendment Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. Do tax amendment 1. Do tax amendment Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 1. Do tax amendment   2. Do tax amendment Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. Do tax amendment   3. Do tax amendment Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Do tax amendment   4. Do tax amendment Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. Do tax amendment   5. Do tax amendment Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Do tax amendment   6. Do tax amendment Enter any foreign housing deduction from Form 2555, line 50 6. Do tax amendment   7. Do tax amendment Enter any excludable savings bond interest from Form 8815, line 14 7. Do tax amendment   8. Do tax amendment Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Do tax amendment   9. Do tax amendment Add lines 1 through 8. Do tax amendment This is your Modified AGI for traditional IRA purposes 9. Do tax amendment   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Do tax amendment If you file Form 1040A, enter your IRA deduction on line 17 of that form. Do tax amendment If you file Form 1040NR, enter your IRA deduction on line 32 of that form. Do tax amendment You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. Do tax amendment Self-employed. Do tax amendment   If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. Do tax amendment If you file Form 1040NR, enter your deduction on line 28 of that form. Do tax amendment Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Do tax amendment The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Do tax amendment Example. Do tax amendment Tony is 29 years old and single. Do tax amendment In 2013, he was covered by a retirement plan at work. Do tax amendment His salary is $62,000. Do tax amendment His modified AGI is $70,000. Do tax amendment Tony makes a $5,500 IRA contribution for 2013. Do tax amendment Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. Do tax amendment He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Do tax amendment Repayment of reservist distributions. Do tax amendment   Nondeductible contributions may include repayments of qualified reservist distributions. Do tax amendment For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. Do tax amendment Form 8606. Do tax amendment   To designate contributions as nondeductible, you must file Form 8606. Do tax amendment (See the filled-in Forms 8606 in this chapter. Do tax amendment )   You do not have to designate a contribution as nondeductible until you file your tax return. Do tax amendment When you file, you can even designate otherwise deductible contributions as nondeductible contributions. Do tax amendment   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Do tax amendment    A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Do tax amendment In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Do tax amendment See Form 8606 under Distributions Fully or Partly Taxable, later. Do tax amendment Failure to report nondeductible contributions. Do tax amendment   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. Do tax amendment All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Do tax amendment Penalty for overstatement. Do tax amendment   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Do tax amendment Penalty for failure to file Form 8606. Do tax amendment   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Do tax amendment Tax on earnings on nondeductible contributions. Do tax amendment   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Do tax amendment Cost basis. Do tax amendment   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Do tax amendment Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Do tax amendment    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. Do tax amendment See Are Distributions Taxable, later, for more information. Do tax amendment Recordkeeping. Do tax amendment There is a recordkeeping worksheet, Appendix A. Do tax amendment Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. Do tax amendment Examples — Worksheet for Reduced IRA Deduction for 2013 The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013. Do tax amendment Example 1. Do tax amendment For 2013, Tom and Betty file a joint return on Form 1040. Do tax amendment They are both 39 years old. Do tax amendment They are both employed and Tom is covered by his employer's retirement plan. Do tax amendment Tom's salary is $59,000 and Betty's is $32,555. Do tax amendment They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Do tax amendment Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Do tax amendment For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Do tax amendment Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. Do tax amendment Tom can take a deduction of only $5,080. Do tax amendment He can choose to treat the $5,080 as either deductible or nondeductible contributions. Do tax amendment He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Do tax amendment He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. Do tax amendment Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. Do tax amendment Betty figures her IRA deduction as follows. Do tax amendment Betty can treat all or part of her contributions as either deductible or nondeductible. Do tax amendment This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Do tax amendment She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. Do tax amendment Betty decides to treat her $5,500 IRA contributions as deductible. Do tax amendment The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. Do tax amendment Example 2. Do tax amendment For 2013, Ed and Sue file a joint return on Form 1040. Do tax amendment They are both 39 years old. Do tax amendment Ed is covered by his employer's retirement plan. Do tax amendment Ed's salary is $45,000. Do tax amendment Sue had no compensation for the year and did not contribute to an IRA. Do tax amendment Sue is not covered by an employer plan. Do tax amendment Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Do tax amendment Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555. Do tax amendment Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. Do tax amendment He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Do tax amendment Sue figures her IRA deduction as shown on Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. Do tax amendment Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013 (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Do tax amendment ) Note. Do tax amendment If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Do tax amendment IF you . Do tax amendment . Do tax amendment . Do tax amendment AND your  filing status is . Do tax amendment . Do tax amendment . Do tax amendment AND your modified AGI is over . Do tax amendment . Do tax amendment . Do tax amendment THEN enter on  line 1 below . Do tax amendment . Do tax amendment . Do tax amendment       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Do tax amendment Enter applicable amount from table above 1. Do tax amendment   2. Do tax amendment Enter your modified AGI (that of both spouses, if married filing jointly) 2. Do tax amendment     Note. Do tax amendment If line 2 is equal to or more than the amount on line 1, stop here. Do tax amendment  Your IRA contributions are not deductible. Do tax amendment See Nondeductible Contributions , earlier. Do tax amendment     3. Do tax amendment Subtract line 2 from line 1. Do tax amendment If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Do tax amendment You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Do tax amendment   4. Do tax amendment Multiply line 3 by the percentage below that applies to you. Do tax amendment If the result is not a multiple of $10, round it to the next highest multiple of $10. Do tax amendment (For example, $611. Do tax amendment 40 is rounded to $620. Do tax amendment ) However, if the result is less than $200, enter $200. Do tax amendment         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Do tax amendment 5% (. Do tax amendment 275) (by 32. Do tax amendment 5% (. Do tax amendment 325) if you are age 50 or older). Do tax amendment All others, multiply line 3 by 55% (. Do tax amendment 55) (by 65% (. Do tax amendment 65) if you are age 50 or older). Do tax amendment 4. Do tax amendment   5. Do tax amendment Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Do tax amendment If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Do tax amendment If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Do tax amendment   6. Do tax amendment Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Do tax amendment If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Do tax amendment 6. Do tax amendment   7. Do tax amendment IRA deduction. Do tax amendment Compare lines 4, 5, and 6. Do tax amendment Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Do tax amendment If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Do tax amendment   8. Do tax amendment Nondeductible contribution. Do tax amendment Subtract line 7 from line 5 or 6, whichever is smaller. Do tax amendment  Enter the result here and on line 1 of your Form 8606 8. Do tax amendment   Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Do tax amendment ) Note. Do tax amendment If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Do tax amendment IF you . Do tax amendment . Do tax amendment . Do tax amendment AND your  filing status is . Do tax amendment . Do tax amendment . Do tax amendment AND your modified AGI is over . Do tax amendment . Do tax amendment . Do tax amendment THEN enter on  line 1 below . Do tax amendment . Do tax amendment . Do tax amendment       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Do tax amendment Enter applicable amount from table above 1. Do tax amendment 115,000 2. Do tax amendment Enter your modified AGI (that of both spouses, if married filing jointly) 2. Do tax amendment 96,555   Note. Do tax amendment If line 2 is equal to or more than the amount on line 1, stop here. Do tax amendment  Your IRA contributions are not deductible. Do tax amendment See Nondeductible Contributions , earlier. Do tax amendment     3. Do tax amendment Subtract line 2 from line 1. Do tax amendment If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Do tax amendment You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Do tax amendment 18,445 4. Do tax amendment Multiply line 3 by the percentage below that applies to you. Do tax amendment If the result is not a multiple of $10, round it to the next highest multiple of $10. Do tax amendment (For example, $611. Do tax amendment 40 is rounded to $620. Do tax amendment ) However, if the result is less than $200, enter $200. Do tax amendment         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Do tax amendment 5% (. Do tax amendment 275) (by 32. Do tax amendment 5% (. Do tax amendment 325) if you are age 50 or older). Do tax amendment All others, multiply line 3 by 55% (. Do tax amendment 55) (by 65% (. Do tax amendment 65) if you are age 50 or older). Do tax amendment 4. Do tax amendment 5,080 5. Do tax amendment Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Do tax amendment If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Do tax amendment If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Do tax amendment 59,000 6. Do tax amendment Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Do tax amendment If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Do tax amendment 6. Do tax amendment 5,500 7. Do tax amendment IRA deduction. Do tax amendment Compare lines 4, 5, and 6. Do tax amendment Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Do tax amendment If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Do tax amendment 5,080 8. Do tax amendment Nondeductible contribution. Do tax amendment Subtract line 7 from line 5 or 6, whichever is smaller. Do tax amendment  Enter the result here and on line 1 of your Form 8606 8. Do tax amendment 420 Worksheet 1-2. Do tax amendment Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Do tax amendment ) Note. Do tax amendment If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Do tax amendment IF you . Do tax amendment . Do tax amendment . Do tax amendment AND your  filing status is . Do tax amendment . Do tax amendment . Do tax amendment AND your modified AGI is over . Do tax amendment . Do tax amendment . Do tax amendment THEN enter on  line 1 below . Do tax amendment . Do tax amendment . Do tax amendment       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Do tax amendment Enter applicable amount from table above 1. Do tax amendment 188,000 2. Do tax amendment Enter your modified AGI (that of both spouses, if married filing jointly) 2. Do tax amendment 180,555   Note. Do tax amendment If line 2 is equal to or more than the amount on line 1, stop here. Do tax amendment  Your IRA contributions are not deductible. Do tax amendment See Nondeductible Contributions , earlier. Do tax amendment     3. Do tax amendment Subtract line 2 from line 1. Do tax amendment If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Do tax amendment You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Do tax amendment 7,445 4. Do tax amendment Multiply line 3 by the percentage below that applies to you. Do tax amendment If the result is not a multiple of $10, round it to the next highest multiple of $10. Do tax amendment (For example, $611. Do tax amendment 40 is rounded to $620. Do tax amendment ) However, if the result is less than $200, enter $200. Do tax amendment         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Do tax amendment 5% (. Do tax amendment 275) (by 32. Do tax amendment 5% (. Do tax amendment 325) if you are age 50 or older). Do tax amendment All others, multiply line 3 by 55% (. Do tax amendment 55) (by 65% (. Do tax amendment 65) if you are age 50 or older). Do tax amendment 4. Do tax amendment 4,100 5. Do tax amendment Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Do tax amendment If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Do tax amendment If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Do tax amendment 39,500 6. Do tax amendment Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Do tax amendment If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Do tax amendment 6. Do tax amendment 5,500 7. Do tax amendment IRA deduction. Do tax amendment Compare lines 4, 5, and 6. Do tax amendment Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Do tax amendment If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Do tax amendment 4,100 8. Do tax amendment Nondeductible contribution. Do tax amendment Subtract line 7 from line 5 or 6, whichever is smaller. Do tax amendment  Enter the result here and on line 1 of your Form 8606 8. Do tax amendment 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. Do tax amendment A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Do tax amendment Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Do tax amendment Inherited from spouse. Do tax amendment   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Do tax amendment You can: Treat it as your own IRA by designating yourself as the account owner. Do tax amendment Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (s
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Do tax amendment 4. Do tax amendment   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Do tax amendment However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Do tax amendment For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Do tax amendment This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Do tax amendment The student loan interest deduction is taken as an adjustment to income. Do tax amendment This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Do tax amendment This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Do tax amendment Table 4-1. Do tax amendment Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Do tax amendment Do not rely on this table alone. Do tax amendment Refer to the text for complete details. Do tax amendment Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Do tax amendment Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Do tax amendment Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Do tax amendment Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Do tax amendment Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Do tax amendment Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Do tax amendment It includes both required and voluntary interest payments. Do tax amendment Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Do tax amendment Loans from the following sources are not qualified student loans. Do tax amendment A related person. Do tax amendment A qualified employer plan. Do tax amendment Your dependent. Do tax amendment   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Do tax amendment You can find more information about dependents in Publication 501. Do tax amendment Exceptions. Do tax amendment   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Do tax amendment An individual can be your dependent even if you are the dependent of another taxpayer. Do tax amendment An individual can be your dependent even if the individual files a joint return with a spouse. Do tax amendment An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Do tax amendment Reasonable period of time. Do tax amendment   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Do tax amendment   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Do tax amendment The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Do tax amendment   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Do tax amendment Academic period. Do tax amendment   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Do tax amendment In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Do tax amendment Eligible student. Do tax amendment   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Do tax amendment Enrolled at least half-time. Do tax amendment   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Do tax amendment   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Do tax amendment However, the standard may not be lower than any of those established by the U. Do tax amendment S. Do tax amendment Department of Education under the Higher Education Act of 1965. Do tax amendment Related person. Do tax amendment   You cannot deduct interest on a loan you get from a related person. Do tax amendment Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Do tax amendment ), Your lineal descendants (children, grandchildren, etc. Do tax amendment ), and Certain corporations, partnerships, trusts, and exempt organizations. Do tax amendment Qualified employer plan. Do tax amendment   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Do tax amendment Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Do tax amendment They include amounts paid for the following items. Do tax amendment Tuition and fees. Do tax amendment Room and board. Do tax amendment Books, supplies, and equipment. Do tax amendment Other necessary expenses (such as transportation). Do tax amendment The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Do tax amendment Eligible educational institution. Do tax amendment   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Do tax amendment S. Do tax amendment Department of Education. Do tax amendment It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Do tax amendment   Certain educational institutions located outside the United States also participate in the U. Do tax amendment S. Do tax amendment Department of Education's Federal Student Aid (FSA) programs. Do tax amendment   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Do tax amendment   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Do tax amendment The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Do tax amendment    The educational institution should be able to tell you if it is an eligible educational institution. Do tax amendment Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Do tax amendment Employer-provided educational assistance. Do tax amendment See chapter 11, Employer-Provided Educational Assistance . Do tax amendment Tax-free distribution of earnings from a Coverdell education savings account (ESA). Do tax amendment See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Do tax amendment Tax-free distribution of earnings from a qualified tuition program (QTP). Do tax amendment See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Do tax amendment U. Do tax amendment S. Do tax amendment savings bond interest that you exclude from income because it is used to pay qualified education expenses. Do tax amendment See chapter 10, Education Savings Bond Program . Do tax amendment The tax-free part of scholarships and fellowships. Do tax amendment See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Do tax amendment Veterans' educational assistance. Do tax amendment See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Do tax amendment Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Do tax amendment Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Do tax amendment Loan origination fee. Do tax amendment   In general, this is a one-time fee charged by the lender when a loan is made. Do tax amendment To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Do tax amendment A loan origination fee treated as interest accrues over the term of the loan. Do tax amendment   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Do tax amendment If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Do tax amendment The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Do tax amendment A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Do tax amendment Example. Do tax amendment In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Do tax amendment The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Do tax amendment Bill began making payments on his student loan in 2013. Do tax amendment Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Do tax amendment Bill's loan is payable in 120 equal monthly payments. Do tax amendment He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Do tax amendment Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Do tax amendment To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Do tax amendment Capitalized interest. Do tax amendment   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Do tax amendment Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Do tax amendment No deduction for capitalized interest is allowed in a year in which no loan payments were made. Do tax amendment Interest on revolving lines of credit. Do tax amendment   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Do tax amendment See Qualified Education Expenses , earlier. Do tax amendment Interest on refinanced student loans. Do tax amendment   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Do tax amendment    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Do tax amendment Voluntary interest payments. Do tax amendment   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Do tax amendment Example. Do tax amendment The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Do tax amendment He began making payments as required. Do tax amendment In September 2013, Roger enrolled in graduate school on a full-time basis. Do tax amendment He applied for and was granted deferment of his loan payments while in graduate school. Do tax amendment Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Do tax amendment Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Do tax amendment Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Do tax amendment To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Do tax amendment Example. Do tax amendment In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Do tax amendment The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Do tax amendment The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Do tax amendment At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Do tax amendment The loan is payable over 60 months, with a payment of $200. Do tax amendment 51 due on the first of each month, beginning November 2013. Do tax amendment Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Do tax amendment However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Do tax amendment Payment Date   Payment   Stated Interest   Principal November 2013   $200. Do tax amendment 51   $44. Do tax amendment 27   $156. Do tax amendment 24 December 2013   $200. Do tax amendment 51   $43. Do tax amendment 62   $156. Do tax amendment 89 Totals   $401. Do tax amendment 02   $87. Do tax amendment 89   $313. Do tax amendment 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Do tax amendment 89. Do tax amendment Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Do tax amendment A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Do tax amendment Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Do tax amendment Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Do tax amendment 02 ($87. Do tax amendment 89 + $10 + $303. Do tax amendment 13). Do tax amendment For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Do tax amendment She also will apply the remaining amount of capitalized interest ($625 − $303. Do tax amendment 13 = $321. Do tax amendment 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Do tax amendment Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Do tax amendment Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Do tax amendment Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Do tax amendment Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Do tax amendment For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Do tax amendment When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Do tax amendment Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Do tax amendment Your filing status is any filing status except married filing separately. Do tax amendment No one else is claiming an exemption for you on his or her tax return. Do tax amendment You are legally obligated to pay interest on a qualified student loan. Do tax amendment You paid interest on a qualified student loan. Do tax amendment Claiming an exemption for you. Do tax amendment   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Do tax amendment Example 1. Do tax amendment During 2013, Josh paid $600 interest on his qualified student loan. Do tax amendment Only he is legally obligated to make the payments. Do tax amendment No one claimed an exemption for Josh for 2013. Do tax amendment Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Do tax amendment Example 2. Do tax amendment During 2013, Jo paid $1,100 interest on her qualified student loan. Do tax amendment Only she is legally obligated to make the payments. Do tax amendment Jo's parents claimed an exemption for her on their 2013 tax return. Do tax amendment In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Do tax amendment Interest paid by others. Do tax amendment   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Do tax amendment Example 1. Do tax amendment Darla obtained a qualified student loan to attend college. Do tax amendment After Darla's graduation from college, she worked as an intern for a nonprofit organization. Do tax amendment As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Do tax amendment This payment was treated as additional compensation and reported in box 1 of her Form W-2. Do tax amendment Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Do tax amendment Example 2. Do tax amendment Ethan obtained a qualified student loan to attend college. Do tax amendment After graduating from college, the first monthly payment on his loan was due in December. Do tax amendment As a gift, Ethan's mother made this payment for him. Do tax amendment No one is claiming a dependency exemption for Ethan on his or her tax return. Do tax amendment Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Do tax amendment No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Do tax amendment Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Do tax amendment However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Do tax amendment You can use Worksheet 4-1. Do tax amendment Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Do tax amendment Form 1098-E. Do tax amendment   To help you figure your student loan interest deduction, you should receive Form 1098-E. Do tax amendment Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Do tax amendment   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Do tax amendment Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Do tax amendment However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Do tax amendment See Allocating Payments Between Interest and Principal , earlier. Do tax amendment    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Do tax amendment The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Do tax amendment Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Do tax amendment You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Do tax amendment Modified adjusted gross income (MAGI). Do tax amendment   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Do tax amendment However, as discussed below, there may be other modifications. Do tax amendment Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Do tax amendment Table 4-2. Do tax amendment Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Do tax amendment . Do tax amendment . Do tax amendment AND your MAGI is. Do tax amendment . Do tax amendment . Do tax amendment THEN your student loan interest deduction is. Do tax amendment . Do tax amendment . Do tax amendment single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Do tax amendment more than $60,000  but less than $75,000 reduced because of the phaseout. Do tax amendment $75,000 or more eliminated by the phaseout. Do tax amendment married filing joint return not more than $125,000 not affected by the phaseout. Do tax amendment more than $125,000 but less than $155,000 reduced because of the phaseout. Do tax amendment $155,000 or more eliminated by the phaseout. Do tax amendment MAGI when using Form 1040A. Do tax amendment   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Do tax amendment MAGI when using Form 1040. Do tax amendment   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Do tax amendment MAGI when using Form 1040NR. Do tax amendment   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Do tax amendment MAGI when using Form 1040NR-EZ. Do tax amendment   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Do tax amendment Phaseout. Do tax amendment   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Do tax amendment To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Do tax amendment The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Do tax amendment The denominator is $15,000 ($30,000 in the case of a joint return). Do tax amendment Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Do tax amendment Example 1. Do tax amendment During 2013 you paid $800 interest on a qualified student loan. Do tax amendment Your 2013 MAGI is $145,000 and you are filing a joint return. Do tax amendment You must reduce your deduction by $533, figured as follows. Do tax amendment   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Do tax amendment Example 2. Do tax amendment The facts are the same as in Example 1 except that you paid $2,750 interest. Do tax amendment Your maximum deduction for 2013 is $2,500. Do tax amendment You must reduce your maximum deduction by $1,667, figured as follows. Do tax amendment   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Do tax amendment Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Do tax amendment However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Do tax amendment Student Loan Interest Deduction Worksheet at the end of this chapter. Do tax amendment Claiming the Deduction The student loan interest deduction is an adjustment to income. Do tax amendment To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Do tax amendment Worksheet 4-1. Do tax amendment Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Do tax amendment Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Do tax amendment 1. Do tax amendment Enter the total interest you paid in 2013 on qualified student loans. Do tax amendment Do not enter  more than $2,500 1. Do tax amendment   2. Do tax amendment Enter the amount from Form 1040, line 22 2. Do tax amendment       3. Do tax amendment Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Do tax amendment           4. Do tax amendment Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Do tax amendment           5. Do tax amendment Add lines 3 and 4 5. Do tax amendment       6. Do tax amendment Subtract line 5 from line 2 6. Do tax amendment       7. Do tax amendment Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Do tax amendment       8. Do tax amendment Enter any foreign housing deduction (Form 2555, line 50) 8. Do tax amendment       9. Do tax amendment Enter the amount of income from Puerto Rico you are excluding 9. Do tax amendment       10. Do tax amendment Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Do tax amendment       11. Do tax amendment Add lines 6 through 10. Do tax amendment This is your modified adjusted gross income 11. Do tax amendment   12. Do tax amendment Enter the amount shown below for your filing status 12. Do tax amendment     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Do tax amendment Is the amount on line 11 more than the amount on line 12?       □ No. Do tax amendment Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Do tax amendment       □ Yes. Do tax amendment Subtract line 12 from line 11 13. Do tax amendment   14. Do tax amendment Divide line 13 by $15,000 ($30,000 if married filing jointly). Do tax amendment Enter the result as a decimal  (rounded to at least three places). Do tax amendment If the result is 1. Do tax amendment 000 or more, enter 1. Do tax amendment 000 14. Do tax amendment . Do tax amendment 15. Do tax amendment Multiply line 1 by line 14 15. Do tax amendment   16. Do tax amendment Student loan interest deduction. Do tax amendment Subtract line 15 from line 1. Do tax amendment Enter the result here  and on Form 1040, line 33. Do tax amendment Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Do tax amendment ) 16. Do tax amendment   Prev  Up  Next   Home   More Online Publications