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Free tax act 1. Free tax act   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. Free tax act When repayment contributions can be made. Free tax act No deduction. Free tax act Reserve component. Free tax act Figuring your IRA deduction. Free tax act Reporting the repayment. Free tax act Example. Free tax act 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. Free tax act 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. Free tax act Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. Free tax act 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. Free tax act 2013 Reporting. Free tax act Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. Free tax act One-time transfer. Free tax act Testing period rules apply. Free tax act More information. Free tax act 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. Free tax act  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. Free tax act 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. Free tax act For more information, see How Much Can Be Contributed? in this chapter. Free tax act Modified AGI limit for traditional IRA contributions increased. Free tax act  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. Free tax act 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. Free tax act If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Free tax act See How Much Can You Deduct? in this chapter. Free tax act Net Investment Income Tax. Free tax act  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). Free tax act However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free tax act Distributions from a nonqualified retirement plan are included in net investment income. Free tax act See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Free tax act What's New for 2014 Modified AGI limit for traditional IRA contributions increased. Free tax act  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. Free tax act 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. Free tax act If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. Free tax act Introduction This chapter discusses the original IRA. Free tax act In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Free tax act ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Free tax act 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. Free tax act Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Free tax act 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. Free tax act You can have a traditional IRA whether or not you are covered by any other retirement plan. Free tax act However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. Free tax act See How Much Can You Deduct , later. Free tax act Both spouses have compensation. Free tax act   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. Free tax act You cannot both participate in the same IRA. Free tax act If you file a joint return, only one of you needs to have compensation. Free tax act What Is Compensation? Generally, compensation is what you earn from working. Free tax act For a summary of what compensation does and does not include, see Table 1-1. Free tax act Compensation includes all of the items discussed next (even if you have more than one type). Free tax act Wages, salaries, etc. Free tax act   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Free tax act 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). Free tax act Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. Free tax act Commissions. Free tax act   An amount you receive that is a percentage of profits or sales price is compensation. Free tax act Self-employment income. Free tax act   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. Free tax act   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Free tax act Self-employment loss. Free tax act   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Free tax act Alimony and separate maintenance. Free tax act   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. Free tax act Nontaxable combat pay. Free tax act   If you were a member of the U. Free tax act S. Free tax act Armed Forces, compensation includes any nontaxable combat pay you received. Free tax act This amount should be reported in box 12 of your 2013 Form W-2 with code Q. Free tax act Table 1-1. Free tax act Compensation for Purposes of an IRA Includes . Free tax act . Free tax act . Free tax act Does not include . Free tax act . Free tax act . Free tax act   earnings and profits from property. Free tax act wages, salaries, etc. Free tax act     interest and dividend income. Free tax act commissions. Free tax act     pension or annuity income. Free tax act self-employment income. Free tax act     deferred compensation. Free tax act alimony and separate maintenance. Free tax act     income from certain  partnerships. Free tax act nontaxable combat pay. Free tax act     any amounts you exclude from income. Free tax act     What Is Not Compensation? Compensation does not include any of the following items. Free tax act Earnings and profits from property, such as rental income, interest income, and dividend income. Free tax act Pension or annuity income. Free tax act Deferred compensation received (compensation payments postponed from a past year). Free tax act Income from a partnership for which you do not provide services that are a material income-producing factor. Free tax act Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Free tax act Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Free tax act When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Free tax act However, the time for making contributions for any year is limited. Free tax act See When Can Contributions Be Made , later. Free tax act How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. Free tax act You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Free tax act You can also open an IRA through your stockbroker. Free tax act Any IRA must meet Internal Revenue Code requirements. Free tax act The requirements for the various arrangements are discussed below. Free tax act Kinds of traditional IRAs. Free tax act   Your traditional IRA can be an individual retirement account or annuity. Free tax act It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Free tax act 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. Free tax act The account is created by a written document. Free tax act The document must show that the account meets all of the following requirements. Free tax act 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. Free tax act The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. Free tax act However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. Free tax act Contributions, except for rollover contributions, must be in cash. Free tax act See Rollovers , later. Free tax act You must have a nonforfeitable right to the amount at all times. Free tax act Money in your account cannot be used to buy a life insurance policy. Free tax act Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. Free tax act You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. Free tax act See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Free tax act Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. Free tax act 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. Free tax act An individual retirement annuity must meet all the following requirements. Free tax act Your entire interest in the contract must be nonforfeitable. Free tax act The contract must provide that you cannot transfer any portion of it to any person other than the issuer. Free tax act There must be flexible premiums so that if your compensation changes, your payment can also change. Free tax act This provision applies to contracts issued after November 6, 1978. Free tax act 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. Free tax act Distributions must begin by April 1 of the year following the year in which you reach age 70½. Free tax act See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Free tax act Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. Free tax act The bonds have the following features. Free tax act They stop earning interest when you reach age 70½. Free tax act If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. Free tax act You cannot transfer the bonds. Free tax act If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. Free tax act See Age 59½ Rule under Early Distributions, later. Free tax act You can roll over redemption proceeds into IRAs. Free tax act 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. Free tax act Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. Free tax act See Publication 560 for more information about SEPs. Free tax act 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. Free tax act The requirements for individual retirement accounts apply to these traditional IRAs. Free tax act 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. Free tax act 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. Free tax act The disclosure statement must explain certain items in plain language. Free tax act 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. Free tax act This explanation must appear at the beginning of the disclosure statement. Free tax act If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. Free tax act 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. Free tax act These requirements apply to all sponsors. Free tax act How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Free tax act These limits and rules are explained below. Free tax act Community property laws. Free tax act   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. Free tax act This is the rule even in states with community property laws. Free tax act Brokers' commissions. Free tax act   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Free tax act For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. Free tax act Trustees' fees. Free tax act   Trustees' administrative fees are not subject to the contribution limit. Free tax act For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. Free tax act Qualified reservist repayments. Free tax act   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. Free tax act 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. Free tax act 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. Free tax act Limit. Free tax act   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. Free tax act When repayment contributions can be made. Free tax act   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. Free tax act No deduction. Free tax act   You cannot deduct qualified reservist repayments. Free tax act Reserve component. Free tax act   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. Free tax act Figuring your IRA deduction. Free tax act   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Free tax act Reporting the repayment. Free tax act   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Free tax act Example. Free tax act   In 2013, your IRA contribution limit is $5,500. Free tax act However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. Free tax act You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). Free tax act In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. Free tax act   For 2013, you can contribute a total of $8,500 to your IRA. Free tax act 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. Free tax act You contribute the maximum allowable for the year. Free tax act 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. Free tax act The qualified reservist repayment is not deductible. Free tax act Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Free tax act See chapter 2 for information about Roth IRAs. Free tax act 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. Free tax act Note. Free tax act 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). Free tax act 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. Free tax act (See Nondeductible Contributions , later. Free tax act ) Qualified reservist repayments do not affect this limit. Free tax act Examples. Free tax act George, who is 34 years old and single, earns $24,000 in 2013. Free tax act His IRA contributions for 2013 are limited to $5,500. Free tax act Danny, an unmarried college student working part time, earns $3,500 in 2013. Free tax act His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Free tax act More than one IRA. Free tax act   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. Free tax act Annuity or endowment contracts. Free tax act   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. Free tax act If more than this amount is contributed, the annuity or endowment contract is disqualified. Free tax act 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. Free tax act Your spouse's IRA contribution for the year to a traditional IRA. Free tax act Any contributions for the year to a Roth IRA on behalf of your spouse. Free tax act 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). Free tax act Note. Free tax act 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). Free tax act Example. Free tax act Kristin, a full-time student with no taxable compensation, marries Carl during the year. Free tax act Neither of them was age 50 by the end of 2013. Free tax act For the year, Carl has taxable compensation of $30,000. Free tax act He plans to contribute (and deduct) $5,500 to a traditional IRA. Free tax act If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. Free tax act 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. Free tax act 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). Free tax act 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. Free tax act 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. Free tax act See How Much Can You Deduct , later. Free tax act Example. Free tax act Tom and Darcy are married and both are 53. Free tax act They both work and each has a traditional IRA. Free tax act Tom earned $3,800 and Darcy earned $48,000 in 2013. Free tax act 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. Free tax act They can contribute up to $6,500 to Darcy's IRA. Free tax act If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Free tax act 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. Free tax act Example. Free tax act Rafael, who is 40, earns $30,000 in 2013. Free tax act Although he can contribute up to $5,500 for 2013, he contributes only $3,000. Free tax act After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). Free tax act He cannot contribute $2,500 more than the limit for any later year. Free tax act 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. Free tax act However, a penalty or additional tax may apply. Free tax act See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. Free tax act 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). Free tax act Contributions must be in the form of money (cash, check, or money order). Free tax act Property cannot be contributed. Free tax act Although property cannot be contributed, your IRA may invest in certain property. Free tax act For example, your IRA may purchase shares of stock. Free tax act For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. Free tax act You may be able to transfer or roll over certain property from one retirement plan to another. Free tax act See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . Free tax act 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. Free tax act For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). Free tax act Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. Free tax act 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. Free tax act See Who Can Open a Traditional IRA , earlier. Free tax act 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. Free tax act Contributions can resume for any years that you qualify. Free tax act Contributions must be made by due date. Free tax act   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. Free tax act 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. Free tax act Age 70½ rule. Free tax act   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Free tax act   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Free tax act If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Free tax act Designating year for which contribution is made. Free tax act   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. Free tax act 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). Free tax act Filing before a contribution is made. Free tax act    You can file your return claiming a traditional IRA contribution before the contribution is actually made. Free tax act Generally, the contribution must be made by the due date of your return, not including extensions. Free tax act Contributions not required. Free tax act   You do not have to contribute to your traditional IRA for every tax year, even if you can. Free tax act 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 . Free tax act However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Free tax act See Limit if Covered by Employer Plan , later. Free tax act You may be able to claim a credit for contributions to your traditional IRA. Free tax act For more information, see chapter 4. Free tax act Trustees' fees. Free tax act   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Free tax act However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Free tax act For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. Free tax act Brokers' commissions. Free tax act   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Free tax act Full deduction. Free tax act   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. Free tax act   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Free tax act Kay Bailey Hutchison Spousal IRA. Free tax act   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. Free tax act The IRA deduction for the year of the spouse with the greater compensation. Free tax act Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Free tax act Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Free tax act   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Free tax act Note. Free tax act 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. Free tax act After a divorce or legal separation, you can deduct only the contributions to your own IRA. Free tax act Your deductions are subject to the rules for single individuals. Free tax act Covered by an employer retirement plan. Free tax act   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. Free tax act This is discussed later under Limit if Covered by Employer Plan . Free tax act Limits on the amount you can deduct do not affect the amount that can be contributed. Free tax act 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. Free tax act The “Retirement Plan” box should be checked if you were covered. Free tax act Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. Free tax act If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Free tax act Federal judges. Free tax act   For purposes of the IRA deduction, federal judges are covered by an employer plan. Free tax act For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. Free tax act These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Free tax act Tax year. Free tax act   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Free tax act For almost all people, the tax year is the calendar year. Free tax act Defined contribution plan. Free tax act   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. Free tax act However, also see Situations in Which You Are Not Covered , later. Free tax act   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Free tax act In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. Free tax act 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. Free tax act Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Free tax act Example. Free tax act Company A has a money purchase pension plan. Free tax act Its plan year is from July 1 to June 30. Free tax act The plan provides that contributions must be allocated as of June 30. Free tax act Bob, an employee, leaves Company A on December 31, 2012. Free tax act The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. Free tax act Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. Free tax act   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. Free tax act 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. Free tax act 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. Free tax act Example. Free tax act Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. Free tax act The plan year runs from July 1 to June 30. Free tax act 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. Free tax act 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. Free tax act 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. Free tax act 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. Free tax act On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. Free tax act That contribution was made on February 15, 2014. Free tax act Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. Free tax act No vested interest. Free tax act   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. Free tax act Defined benefit plan. Free tax act   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. Free tax act 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. Free tax act   A defined benefit plan is any plan that is not a defined contribution plan. Free tax act In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. Free tax act The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Free tax act Defined benefit plans include pension plans and annuity plans. Free tax act Example. Free tax act 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. Free tax act Nick leaves Company B on December 31, 2012. Free tax act 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. Free tax act No vested interest. Free tax act   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. Free tax act 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. Free tax act Social security or railroad retirement. Free tax act   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Free tax act Benefits from previous employer's plan. Free tax act   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Free tax act Reservists. Free tax act   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. Free tax act You are not covered by the plan if both of the following conditions are met. Free tax act 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. Free tax act You did not serve more than 90 days on active duty during the year (not counting duty for training). Free tax act Volunteer firefighters. Free tax act   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Free tax act You are not covered by the plan if both of the following conditions are met. Free tax act 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. Free tax act Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Free tax act 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. Free tax act Your deduction is also affected by how much income you had and by your filing status. Free tax act Your deduction may also be affected by social security benefits you received. Free tax act Reduced or no deduction. Free tax act   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. Free tax act   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. Free tax act These amounts vary depending on your filing status. Free tax act   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 . Free tax act 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. Free tax act 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. Free tax act You received social security benefits. Free tax act You received taxable compensation. Free tax act Contributions were made to your traditional IRA. Free tax act You or your spouse was covered by an employer retirement plan. Free tax act 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. Free tax act Appendix B includes an example with filled-in worksheets to assist you. Free tax act Table 1-2. Free tax act 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. Free tax act IF your filing status is . Free tax act . Free tax act . Free tax act AND your modified adjusted gross income (modified AGI) is . Free tax act . Free tax act . Free tax act THEN you can take . Free tax act . Free tax act . Free tax act single or head of household $59,000 or less a full deduction. Free tax act more than $59,000 but less than $69,000 a partial deduction. Free tax act $69,000 or more no deduction. Free tax act married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. Free tax act more than $95,000 but less than $115,000 a partial deduction. Free tax act $115,000 or more no deduction. Free tax act married filing separately2 less than $10,000 a partial deduction. Free tax act $10,000 or more no deduction. Free tax act 1 Modified AGI (adjusted gross income). Free tax act See Modified adjusted gross income (AGI) , later. Free tax act  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). Free tax act Table 1-3. Free tax act 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. Free tax act IF your filing status is . Free tax act . Free tax act . Free tax act AND your modified adjusted gross income (modified AGI) is . Free tax act . Free tax act . Free tax act THEN you can take . Free tax act . Free tax act . Free tax act single, head of household, or qualifying widow(er) any amount a full deduction. Free tax act married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. Free tax act married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. Free tax act more than $178,000 but less than $188,000 a partial deduction. Free tax act $188,000 or more no deduction. Free tax act married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. Free tax act $10,000 or more no deduction. Free tax act 1 Modified AGI (adjusted gross income). Free tax act See Modified adjusted gross income (AGI) , later. Free tax act  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. Free tax act 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. Free tax act If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. Free tax act 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. Free tax act Covered by a retirement plan. Free tax act   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. Free tax act 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. Free tax act If your spouse is covered. Free tax act   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. Free tax act Filing status. Free tax act   Your filing status depends primarily on your marital status. Free tax act 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. Free tax act If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Free tax act Lived apart from spouse. Free tax act   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. Free tax act Modified adjusted gross income (AGI). Free tax act   You can use Worksheet 1-1 to figure your modified AGI. Free tax act 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. Free tax act    Do not assume that your modified AGI is the same as your compensation. Free tax act Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. Free tax act Form 1040. Free tax act   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. Free tax act IRA deduction. Free tax act Student loan interest deduction. Free tax act Tuition and fees deduction. Free tax act Domestic production activities deduction. Free tax act Foreign earned income exclusion. Free tax act Foreign housing exclusion or deduction. Free tax act Exclusion of qualified savings bond interest shown on Form 8815. Free tax act Exclusion of employer-provided adoption benefits shown on Form 8839. Free tax act This is your modified AGI. Free tax act Form 1040A. Free tax act   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. Free tax act IRA deduction. Free tax act Student loan interest deduction. Free tax act Tuition and fees deduction. Free tax act Exclusion of qualified savings bond interest shown on Form 8815. Free tax act This is your modified AGI. Free tax act Form 1040NR. Free tax act   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. Free tax act IRA deduction. Free tax act Student loan interest deduction. Free tax act Domestic production activities deduction. Free tax act Exclusion of qualified savings bond interest shown on Form 8815. Free tax act Exclusion of employer-provided adoption benefits shown on Form 8839. Free tax act This is your modified AGI. Free tax act Income from IRA distributions. Free tax act   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. Free tax act Both contributions for 2013 and distributions in 2013. Free tax act   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Free tax act 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. Free tax act (See Nondeductible Contributions and Worksheet 1-2, later. Free tax act ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Free tax act To do this, you can use Worksheet 1-5, later. Free tax act   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. Free tax act 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. Free tax act Figuring Your Reduced IRA Deduction for 2013. Free tax act The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. Free tax act If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. Free tax act Note. Free tax act If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Free tax act Worksheet 1-1. Free tax act Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. Free tax act 1. Free tax act 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. Free tax act   2. Free tax act Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. Free tax act   3. Free tax act Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Free tax act   4. Free tax act Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. Free tax act   5. Free tax act Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Free tax act   6. Free tax act Enter any foreign housing deduction from Form 2555, line 50 6. Free tax act   7. Free tax act Enter any excludable savings bond interest from Form 8815, line 14 7. Free tax act   8. Free tax act Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Free tax act   9. Free tax act Add lines 1 through 8. Free tax act This is your Modified AGI for traditional IRA purposes 9. Free tax act   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Free tax act If you file Form 1040A, enter your IRA deduction on line 17 of that form. Free tax act If you file Form 1040NR, enter your IRA deduction on line 32 of that form. Free tax act You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. Free tax act Self-employed. Free tax act   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. Free tax act If you file Form 1040NR, enter your deduction on line 28 of that form. Free tax act 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. Free tax act The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Free tax act Example. Free tax act Tony is 29 years old and single. Free tax act In 2013, he was covered by a retirement plan at work. Free tax act His salary is $62,000. Free tax act His modified AGI is $70,000. Free tax act Tony makes a $5,500 IRA contribution for 2013. Free tax act Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. Free tax act He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Free tax act Repayment of reservist distributions. Free tax act   Nondeductible contributions may include repayments of qualified reservist distributions. Free tax act For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. Free tax act Form 8606. Free tax act   To designate contributions as nondeductible, you must file Form 8606. Free tax act (See the filled-in Forms 8606 in this chapter. Free tax act )   You do not have to designate a contribution as nondeductible until you file your tax return. Free tax act When you file, you can even designate otherwise deductible contributions as nondeductible contributions. Free tax act   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Free tax act    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. Free tax act In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Free tax act See Form 8606 under Distributions Fully or Partly Taxable, later. Free tax act Failure to report nondeductible contributions. Free tax act   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. Free tax act All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Free tax act Penalty for overstatement. Free tax act   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. Free tax act Penalty for failure to file Form 8606. Free tax act   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. Free tax act Tax on earnings on nondeductible contributions. Free tax act   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. Free tax act Cost basis. Free tax act   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Free tax act Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Free tax act    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. Free tax act See Are Distributions Taxable, later, for more information. Free tax act Recordkeeping. Free tax act There is a recordkeeping worksheet, Appendix A. Free tax act Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. Free tax act 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. Free tax act Example 1. Free tax act For 2013, Tom and Betty file a joint return on Form 1040. Free tax act They are both 39 years old. Free tax act They are both employed and Tom is covered by his employer's retirement plan. Free tax act Tom's salary is $59,000 and Betty's is $32,555. Free tax act They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Free tax act 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 . Free tax act For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Free tax act Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. Free tax act Tom can take a deduction of only $5,080. Free tax act He can choose to treat the $5,080 as either deductible or nondeductible contributions. Free tax act He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Free tax act He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. Free tax act Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Free tax act Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. Free tax act Betty figures her IRA deduction as follows. Free tax act Betty can treat all or part of her contributions as either deductible or nondeductible. Free tax act 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 . Free tax act 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. Free tax act Betty decides to treat her $5,500 IRA contributions as deductible. Free tax act The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. Free tax act Example 2. Free tax act For 2013, Ed and Sue file a joint return on Form 1040. Free tax act They are both 39 years old. Free tax act Ed is covered by his employer's retirement plan. Free tax act Ed's salary is $45,000. Free tax act Sue had no compensation for the year and did not contribute to an IRA. Free tax act Sue is not covered by an employer plan. Free tax act Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Free tax act 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. Free tax act Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. Free tax act He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Free tax act Sue figures her IRA deduction as shown on Worksheet 1-2. Free tax act Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. Free tax act Worksheet 1-2. Free tax act 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. Free tax act ) Note. Free tax act If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Free tax act IF you . Free tax act . Free tax act . Free tax act AND your  filing status is . Free tax act . Free tax act . Free tax act AND your modified AGI is over . Free tax act . Free tax act . Free tax act THEN enter on  line 1 below . Free tax act . Free tax act . Free tax act       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. Free tax act Enter applicable amount from table above 1. Free tax act   2. Free tax act Enter your modified AGI (that of both spouses, if married filing jointly) 2. Free tax act     Note. Free tax act If line 2 is equal to or more than the amount on line 1, stop here. Free tax act  Your IRA contributions are not deductible. Free tax act See Nondeductible Contributions , earlier. Free tax act     3. Free tax act Subtract line 2 from line 1. Free tax act 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. Free tax act 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. Free tax act   4. Free tax act Multiply line 3 by the percentage below that applies to you. Free tax act If the result is not a multiple of $10, round it to the next highest multiple of $10. Free tax act (For example, $611. Free tax act 40 is rounded to $620. Free tax act ) However, if the result is less than $200, enter $200. Free tax act         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Free tax act 5% (. Free tax act 275) (by 32. Free tax act 5% (. Free tax act 325) if you are age 50 or older). Free tax act All others, multiply line 3 by 55% (. Free tax act 55) (by 65% (. Free tax act 65) if you are age 50 or older). Free tax act 4. Free tax act   5. Free tax act 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). Free tax act 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. Free tax act If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Free tax act   6. Free tax act 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). Free tax act If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Free tax act 6. Free tax act   7. Free tax act IRA deduction. Free tax act Compare lines 4, 5, and 6. Free tax act 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. Free tax act If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Free tax act   8. Free tax act Nondeductible contribution. Free tax act Subtract line 7 from line 5 or 6, whichever is smaller. Free tax act  Enter the result here and on line 1 of your Form 8606 8. Free tax act   Worksheet 1-2. Free tax act 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. Free tax act ) Note. Free tax act If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Free tax act IF you . Free tax act . Free tax act . Free tax act AND your  filing status is . Free tax act . Free tax act . Free tax act AND your modified AGI is over . Free tax act . Free tax act . Free tax act THEN enter on  line 1 below . Free tax act . Free tax act . Free tax act       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. Free tax act Enter applicable amount from table above 1. Free tax act 115,000 2. Free tax act Enter your modified AGI (that of both spouses, if married filing jointly) 2. Free tax act 96,555   Note. Free tax act If line 2 is equal to or more than the amount on line 1, stop here. Free tax act  Your IRA contributions are not deductible. Free tax act See Nondeductible Contributions , earlier. Free tax act     3. Free tax act Subtract line 2 from line 1. Free tax act 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. Free tax act 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. Free tax act 18,445 4. Free tax act Multiply line 3 by the percentage below that applies to you. Free tax act If the result is not a multiple of $10, round it to the next highest multiple of $10. Free tax act (For example, $611. Free tax act 40 is rounded to $620. Free tax act ) However, if the result is less than $200, enter $200. Free tax act         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Free tax act 5% (. Free tax act 275) (by 32. Free tax act 5% (. Free tax act 325) if you are age 50 or older). Free tax act All others, multiply line 3 by 55% (. Free tax act 55) (by 65% (. Free tax act 65) if you are age 50 or older). Free tax act 4. Free tax act 5,080 5. Free tax act 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). Free tax act 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. Free tax act If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Free tax act 59,000 6. Free tax act 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). Free tax act If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Free tax act 6. Free tax act 5,500 7. Free tax act IRA deduction. Free tax act Compare lines 4, 5, and 6. Free tax act 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. Free tax act If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Free tax act 5,080 8. Free tax act Nondeductible contribution. Free tax act Subtract line 7 from line 5 or 6, whichever is smaller. Free tax act  Enter the result here and on line 1 of your Form 8606 8. Free tax act 420 Worksheet 1-2. Free tax act 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. Free tax act ) Note. Free tax act If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Free tax act IF you . Free tax act . Free tax act . Free tax act AND your  filing status is . Free tax act . Free tax act . Free tax act AND your modified AGI is over . Free tax act . Free tax act . Free tax act THEN enter on  line 1 below . Free tax act . Free tax act . Free tax act       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. Free tax act Enter applicable amount from table above 1. Free tax act 188,000 2. Free tax act Enter your modified AGI (that of both spouses, if married filing jointly) 2. Free tax act 180,555   Note. Free tax act If line 2 is equal to or more than the amount on line 1, stop here. Free tax act  Your IRA contributions are not deductible. Free tax act See Nondeductible Contributions , earlier. Free tax act     3. Free tax act Subtract line 2 from line 1. Free tax act 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. Free tax act 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. Free tax act 7,445 4. Free tax act Multiply line 3 by the percentage below that applies to you. Free tax act If the result is not a multiple of $10, round it to the next highest multiple of $10. Free tax act (For example, $611. Free tax act 40 is rounded to $620. Free tax act ) However, if the result is less than $200, enter $200. Free tax act         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Free tax act 5% (. Free tax act 275) (by 32. Free tax act 5% (. Free tax act 325) if you are age 50 or older). Free tax act All others, multiply line 3 by 55% (. Free tax act 55) (by 65% (. Free tax act 65) if you are age 50 or older). Free tax act 4. Free tax act 4,100 5. Free tax act 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). Free tax act 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. Free tax act If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Free tax act 39,500 6. Free tax act 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). Free tax act If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Free tax act 6. Free tax act 5,500 7. Free tax act IRA deduction. Free tax act Compare lines 4, 5, and 6. Free tax act 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. Free tax act If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Free tax act 4,100 8. Free tax act Nondeductible contribution. Free tax act Subtract line 7 from line 5 or 6, whichever is smaller. Free tax act  Enter the result here and on line 1 of your Form 8606 8. Free tax act 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. Free tax act A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Free tax act Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Free tax act Inherited from spouse. Free tax act   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Free tax act You can: Treat it as your own IRA by designating yourself as the account owner. Free tax act 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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The Free Tax Act

Free tax act 16. Free tax act   Rulings Program The IRS has a program for assisting taxpayers who have technical problems with tax laws and regulations. Free tax act The IRS will answer inquiries from individuals and organizations about the tax effect of their acts or transactions. Free tax act The National Office of the IRS issues rulings on those matters. Free tax act A ruling is a written statement to a taxpayer that interprets and applies tax laws to the taxpayer's specific set of facts. Free tax act There are also determination letters issued by IRS directors and information letters issued by IRS directors or the National Office. Free tax act There is a fee for most types of determination letters and rulings. Free tax act For complete information on the rulings program, see the first Internal Revenue Bulletin published each year. Free tax act Prev  Up  Next   Home   More Online Publications