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Handrblock free Publication 957 - Introductory Material Table of Contents Future Developments Introduction Future Developments For the latest information about developments related to Publication 957, such as legislation enacted after it was published, go to www. Handrblock free irs. Handrblock free gov/pub957. Handrblock free Introduction The Social Security Administration (SSA) has special rules for back pay awarded by a court or government agency to enforce a worker protection statute (law). Handrblock free The SSA also has rules for reporting special wage payments made to employees after they retire. Handrblock free These rules enable the SSA to correctly compute an employee's benefits under the social security earnings test. Handrblock free These rules are for social security coverage and benefit purposes only. Handrblock free This publication, written primarily for employers, discusses back pay under a statute and special wage payments. Handrblock free It also explains how to report these payments to the SSA. Handrblock free For more information, visit SSA's website at www. Handrblock free socialsecurity. Handrblock free gov/employer. Handrblock free To get a copy of Form SSA-131, Employer Report of Special Wage Payments, visit SSA's website at www. Handrblock free socialsecurity. Handrblock free gov/online/ssa-131. Handrblock free html. Handrblock free Prev  Up  Next   Home   More Online Publications
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Handrblock free 1. Handrblock free   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. Handrblock free When repayment contributions can be made. Handrblock free No deduction. Handrblock free Reserve component. Handrblock free Figuring your IRA deduction. Handrblock free Reporting the repayment. Handrblock free Example. Handrblock free 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. Handrblock free 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. Handrblock free Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. Handrblock free 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. Handrblock free 2013 Reporting. Handrblock free Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. Handrblock free One-time transfer. Handrblock free Testing period rules apply. Handrblock free More information. Handrblock free 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. Handrblock free  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. Handrblock free 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. Handrblock free For more information, see How Much Can Be Contributed? in this chapter. Handrblock free Modified AGI limit for traditional IRA contributions increased. Handrblock free  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. Handrblock free 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. Handrblock free If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Handrblock free See How Much Can You Deduct? in this chapter. Handrblock free Net Investment Income Tax. Handrblock free  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). Handrblock free However, these distributions are taken into account when determining the modified adjusted gross income threshold. Handrblock free Distributions from a nonqualified retirement plan are included in net investment income. Handrblock free See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Handrblock free What's New for 2014 Modified AGI limit for traditional IRA contributions increased. Handrblock free  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. Handrblock free 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. Handrblock free If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. Handrblock free Introduction This chapter discusses the original IRA. Handrblock free In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Handrblock free ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Handrblock free 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. Handrblock free Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Handrblock free 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. Handrblock free You can have a traditional IRA whether or not you are covered by any other retirement plan. Handrblock free However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. Handrblock free See How Much Can You Deduct , later. Handrblock free Both spouses have compensation. Handrblock free   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. Handrblock free You cannot both participate in the same IRA. Handrblock free If you file a joint return, only one of you needs to have compensation. Handrblock free What Is Compensation? Generally, compensation is what you earn from working. Handrblock free For a summary of what compensation does and does not include, see Table 1-1. Handrblock free Compensation includes all of the items discussed next (even if you have more than one type). Handrblock free Wages, salaries, etc. Handrblock free   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Handrblock free 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). Handrblock free Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. Handrblock free Commissions. Handrblock free   An amount you receive that is a percentage of profits or sales price is compensation. Handrblock free Self-employment income. Handrblock free   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. Handrblock free   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Handrblock free Self-employment loss. Handrblock free   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Handrblock free Alimony and separate maintenance. Handrblock free   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. Handrblock free Nontaxable combat pay. Handrblock free   If you were a member of the U. Handrblock free S. Handrblock free Armed Forces, compensation includes any nontaxable combat pay you received. Handrblock free This amount should be reported in box 12 of your 2013 Form W-2 with code Q. Handrblock free Table 1-1. Handrblock free Compensation for Purposes of an IRA Includes . Handrblock free . Handrblock free . Handrblock free Does not include . Handrblock free . Handrblock free . Handrblock free   earnings and profits from property. Handrblock free wages, salaries, etc. Handrblock free     interest and dividend income. Handrblock free commissions. Handrblock free     pension or annuity income. Handrblock free self-employment income. Handrblock free     deferred compensation. Handrblock free alimony and separate maintenance. Handrblock free     income from certain  partnerships. Handrblock free nontaxable combat pay. Handrblock free     any amounts you exclude from income. Handrblock free     What Is Not Compensation? Compensation does not include any of the following items. Handrblock free Earnings and profits from property, such as rental income, interest income, and dividend income. Handrblock free Pension or annuity income. Handrblock free Deferred compensation received (compensation payments postponed from a past year). Handrblock free Income from a partnership for which you do not provide services that are a material income-producing factor. Handrblock free Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Handrblock free Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Handrblock free When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Handrblock free However, the time for making contributions for any year is limited. Handrblock free See When Can Contributions Be Made , later. Handrblock free How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. Handrblock free You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Handrblock free You can also open an IRA through your stockbroker. Handrblock free Any IRA must meet Internal Revenue Code requirements. Handrblock free The requirements for the various arrangements are discussed below. Handrblock free Kinds of traditional IRAs. Handrblock free   Your traditional IRA can be an individual retirement account or annuity. Handrblock free It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Handrblock free 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. Handrblock free The account is created by a written document. Handrblock free The document must show that the account meets all of the following requirements. Handrblock free 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. Handrblock free The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. Handrblock free However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. Handrblock free Contributions, except for rollover contributions, must be in cash. Handrblock free See Rollovers , later. Handrblock free You must have a nonforfeitable right to the amount at all times. Handrblock free Money in your account cannot be used to buy a life insurance policy. Handrblock free Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. Handrblock free You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. Handrblock free See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Handrblock free Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. Handrblock free 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. Handrblock free An individual retirement annuity must meet all the following requirements. Handrblock free Your entire interest in the contract must be nonforfeitable. Handrblock free The contract must provide that you cannot transfer any portion of it to any person other than the issuer. Handrblock free There must be flexible premiums so that if your compensation changes, your payment can also change. Handrblock free This provision applies to contracts issued after November 6, 1978. Handrblock free 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. Handrblock free Distributions must begin by April 1 of the year following the year in which you reach age 70½. Handrblock free See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Handrblock free Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. Handrblock free The bonds have the following features. Handrblock free They stop earning interest when you reach age 70½. Handrblock free If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. Handrblock free You cannot transfer the bonds. Handrblock free If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. Handrblock free See Age 59½ Rule under Early Distributions, later. Handrblock free You can roll over redemption proceeds into IRAs. Handrblock free 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. Handrblock free Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. Handrblock free See Publication 560 for more information about SEPs. Handrblock free 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. Handrblock free The requirements for individual retirement accounts apply to these traditional IRAs. Handrblock free 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. Handrblock free 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. Handrblock free The disclosure statement must explain certain items in plain language. Handrblock free 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. Handrblock free This explanation must appear at the beginning of the disclosure statement. Handrblock free If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. Handrblock free 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. Handrblock free These requirements apply to all sponsors. Handrblock free How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Handrblock free These limits and rules are explained below. Handrblock free Community property laws. Handrblock free   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. Handrblock free This is the rule even in states with community property laws. Handrblock free Brokers' commissions. Handrblock free   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Handrblock free For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. Handrblock free Trustees' fees. Handrblock free   Trustees' administrative fees are not subject to the contribution limit. Handrblock free For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. Handrblock free Qualified reservist repayments. Handrblock free   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. Handrblock free 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. Handrblock free 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. Handrblock free Limit. Handrblock free   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. Handrblock free When repayment contributions can be made. Handrblock free   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. Handrblock free No deduction. Handrblock free   You cannot deduct qualified reservist repayments. Handrblock free Reserve component. Handrblock free   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. Handrblock free Figuring your IRA deduction. Handrblock free   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Handrblock free Reporting the repayment. Handrblock free   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Handrblock free Example. Handrblock free   In 2013, your IRA contribution limit is $5,500. Handrblock free However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. Handrblock free You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). Handrblock free In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. Handrblock free   For 2013, you can contribute a total of $8,500 to your IRA. Handrblock free 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. Handrblock free You contribute the maximum allowable for the year. Handrblock free 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. Handrblock free The qualified reservist repayment is not deductible. Handrblock free Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Handrblock free See chapter 2 for information about Roth IRAs. Handrblock free 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. Handrblock free Note. Handrblock free 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). Handrblock free 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. Handrblock free (See Nondeductible Contributions , later. Handrblock free ) Qualified reservist repayments do not affect this limit. Handrblock free Examples. Handrblock free George, who is 34 years old and single, earns $24,000 in 2013. Handrblock free His IRA contributions for 2013 are limited to $5,500. Handrblock free Danny, an unmarried college student working part time, earns $3,500 in 2013. Handrblock free His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Handrblock free More than one IRA. Handrblock free   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. Handrblock free Annuity or endowment contracts. Handrblock free   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. Handrblock free If more than this amount is contributed, the annuity or endowment contract is disqualified. Handrblock free 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. Handrblock free Your spouse's IRA contribution for the year to a traditional IRA. Handrblock free Any contributions for the year to a Roth IRA on behalf of your spouse. Handrblock free 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). Handrblock free Note. Handrblock free 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). Handrblock free Example. Handrblock free Kristin, a full-time student with no taxable compensation, marries Carl during the year. Handrblock free Neither of them was age 50 by the end of 2013. Handrblock free For the year, Carl has taxable compensation of $30,000. Handrblock free He plans to contribute (and deduct) $5,500 to a traditional IRA. Handrblock free If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. Handrblock free 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. Handrblock free 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). Handrblock free 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. Handrblock free 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. Handrblock free See How Much Can You Deduct , later. Handrblock free Example. Handrblock free Tom and Darcy are married and both are 53. Handrblock free They both work and each has a traditional IRA. Handrblock free Tom earned $3,800 and Darcy earned $48,000 in 2013. Handrblock free 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. Handrblock free They can contribute up to $6,500 to Darcy's IRA. Handrblock free If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Handrblock free 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. Handrblock free Example. Handrblock free Rafael, who is 40, earns $30,000 in 2013. Handrblock free Although he can contribute up to $5,500 for 2013, he contributes only $3,000. Handrblock free After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). Handrblock free He cannot contribute $2,500 more than the limit for any later year. Handrblock free 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. Handrblock free However, a penalty or additional tax may apply. Handrblock free See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. Handrblock free 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). Handrblock free Contributions must be in the form of money (cash, check, or money order). Handrblock free Property cannot be contributed. Handrblock free Although property cannot be contributed, your IRA may invest in certain property. Handrblock free For example, your IRA may purchase shares of stock. Handrblock free For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. Handrblock free You may be able to transfer or roll over certain property from one retirement plan to another. Handrblock free See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . Handrblock free 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. Handrblock free For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). Handrblock free Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. Handrblock free 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. Handrblock free See Who Can Open a Traditional IRA , earlier. Handrblock free 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. Handrblock free Contributions can resume for any years that you qualify. Handrblock free Contributions must be made by due date. Handrblock free   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. Handrblock free 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. Handrblock free Age 70½ rule. Handrblock free   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Handrblock free   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Handrblock free If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Handrblock free Designating year for which contribution is made. Handrblock free   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. Handrblock free 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). Handrblock free Filing before a contribution is made. Handrblock free    You can file your return claiming a traditional IRA contribution before the contribution is actually made. Handrblock free Generally, the contribution must be made by the due date of your return, not including extensions. Handrblock free Contributions not required. Handrblock free   You do not have to contribute to your traditional IRA for every tax year, even if you can. Handrblock free 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 . Handrblock free However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Handrblock free See Limit if Covered by Employer Plan , later. Handrblock free You may be able to claim a credit for contributions to your traditional IRA. Handrblock free For more information, see chapter 4. Handrblock free Trustees' fees. Handrblock free   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Handrblock free However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Handrblock free For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. Handrblock free Brokers' commissions. Handrblock free   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Handrblock free Full deduction. Handrblock free   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. Handrblock free   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Handrblock free Kay Bailey Hutchison Spousal IRA. Handrblock free   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. Handrblock free The IRA deduction for the year of the spouse with the greater compensation. Handrblock free Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Handrblock free Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Handrblock free   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Handrblock free Note. Handrblock free 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. Handrblock free After a divorce or legal separation, you can deduct only the contributions to your own IRA. Handrblock free Your deductions are subject to the rules for single individuals. Handrblock free Covered by an employer retirement plan. Handrblock free   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. Handrblock free This is discussed later under Limit if Covered by Employer Plan . Handrblock free Limits on the amount you can deduct do not affect the amount that can be contributed. Handrblock free 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. Handrblock free The “Retirement Plan” box should be checked if you were covered. Handrblock free Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. Handrblock free If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Handrblock free Federal judges. Handrblock free   For purposes of the IRA deduction, federal judges are covered by an employer plan. Handrblock free For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. Handrblock free These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Handrblock free Tax year. Handrblock free   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Handrblock free For almost all people, the tax year is the calendar year. Handrblock free Defined contribution plan. Handrblock free   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. Handrblock free However, also see Situations in Which You Are Not Covered , later. Handrblock free   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Handrblock free In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. Handrblock free 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. Handrblock free Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Handrblock free Example. Handrblock free Company A has a money purchase pension plan. Handrblock free Its plan year is from July 1 to June 30. Handrblock free The plan provides that contributions must be allocated as of June 30. Handrblock free Bob, an employee, leaves Company A on December 31, 2012. Handrblock free The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. Handrblock free Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. Handrblock free   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. Handrblock free 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. Handrblock free 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. Handrblock free Example. Handrblock free Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. Handrblock free The plan year runs from July 1 to June 30. Handrblock free 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. Handrblock free 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. Handrblock free 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. Handrblock free 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. Handrblock free On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. Handrblock free That contribution was made on February 15, 2014. Handrblock free Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. Handrblock free No vested interest. Handrblock free   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. Handrblock free Defined benefit plan. Handrblock free   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. Handrblock free 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. Handrblock free   A defined benefit plan is any plan that is not a defined contribution plan. Handrblock free In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. Handrblock free The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Handrblock free Defined benefit plans include pension plans and annuity plans. Handrblock free Example. Handrblock free 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. Handrblock free Nick leaves Company B on December 31, 2012. Handrblock free 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. Handrblock free No vested interest. Handrblock free   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. Handrblock free 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. Handrblock free Social security or railroad retirement. Handrblock free   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Handrblock free Benefits from previous employer's plan. Handrblock free   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Handrblock free Reservists. Handrblock free   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. Handrblock free You are not covered by the plan if both of the following conditions are met. Handrblock free 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. Handrblock free You did not serve more than 90 days on active duty during the year (not counting duty for training). Handrblock free Volunteer firefighters. Handrblock free   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Handrblock free You are not covered by the plan if both of the following conditions are met. Handrblock free 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. Handrblock free Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Handrblock free 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. Handrblock free Your deduction is also affected by how much income you had and by your filing status. Handrblock free Your deduction may also be affected by social security benefits you received. Handrblock free Reduced or no deduction. Handrblock free   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. Handrblock free   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. Handrblock free These amounts vary depending on your filing status. Handrblock free   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 . Handrblock free 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. Handrblock free 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. Handrblock free You received social security benefits. Handrblock free You received taxable compensation. Handrblock free Contributions were made to your traditional IRA. Handrblock free You or your spouse was covered by an employer retirement plan. Handrblock free 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. Handrblock free Appendix B includes an example with filled-in worksheets to assist you. Handrblock free Table 1-2. Handrblock free 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. Handrblock free IF your filing status is . Handrblock free . Handrblock free . Handrblock free AND your modified adjusted gross income (modified AGI) is . Handrblock free . Handrblock free . Handrblock free THEN you can take . Handrblock free . Handrblock free . Handrblock free single or head of household $59,000 or less a full deduction. Handrblock free more than $59,000 but less than $69,000 a partial deduction. Handrblock free $69,000 or more no deduction. Handrblock free married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. Handrblock free more than $95,000 but less than $115,000 a partial deduction. Handrblock free $115,000 or more no deduction. Handrblock free married filing separately2 less than $10,000 a partial deduction. Handrblock free $10,000 or more no deduction. Handrblock free 1 Modified AGI (adjusted gross income). Handrblock free See Modified adjusted gross income (AGI) , later. Handrblock free  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). Handrblock free Table 1-3. Handrblock free 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. Handrblock free IF your filing status is . Handrblock free . Handrblock free . Handrblock free AND your modified adjusted gross income (modified AGI) is . Handrblock free . Handrblock free . Handrblock free THEN you can take . Handrblock free . Handrblock free . Handrblock free single, head of household, or qualifying widow(er) any amount a full deduction. Handrblock free married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. Handrblock free married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. Handrblock free more than $178,000 but less than $188,000 a partial deduction. Handrblock free $188,000 or more no deduction. Handrblock free married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. Handrblock free $10,000 or more no deduction. Handrblock free 1 Modified AGI (adjusted gross income). Handrblock free See Modified adjusted gross income (AGI) , later. Handrblock free  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. Handrblock free 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. Handrblock free If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. Handrblock free 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. Handrblock free Covered by a retirement plan. Handrblock free   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. Handrblock free 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. Handrblock free If your spouse is covered. Handrblock free   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. Handrblock free Filing status. Handrblock free   Your filing status depends primarily on your marital status. Handrblock free 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. Handrblock free If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Handrblock free Lived apart from spouse. Handrblock free   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. Handrblock free Modified adjusted gross income (AGI). Handrblock free   You can use Worksheet 1-1 to figure your modified AGI. Handrblock free 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. Handrblock free    Do not assume that your modified AGI is the same as your compensation. Handrblock free Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. Handrblock free Form 1040. Handrblock free   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. Handrblock free IRA deduction. Handrblock free Student loan interest deduction. Handrblock free Tuition and fees deduction. Handrblock free Domestic production activities deduction. Handrblock free Foreign earned income exclusion. Handrblock free Foreign housing exclusion or deduction. Handrblock free Exclusion of qualified savings bond interest shown on Form 8815. Handrblock free Exclusion of employer-provided adoption benefits shown on Form 8839. Handrblock free This is your modified AGI. Handrblock free Form 1040A. Handrblock free   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. Handrblock free IRA deduction. Handrblock free Student loan interest deduction. Handrblock free Tuition and fees deduction. Handrblock free Exclusion of qualified savings bond interest shown on Form 8815. Handrblock free This is your modified AGI. Handrblock free Form 1040NR. Handrblock free   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. Handrblock free IRA deduction. Handrblock free Student loan interest deduction. Handrblock free Domestic production activities deduction. Handrblock free Exclusion of qualified savings bond interest shown on Form 8815. Handrblock free Exclusion of employer-provided adoption benefits shown on Form 8839. Handrblock free This is your modified AGI. Handrblock free Income from IRA distributions. Handrblock free   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. Handrblock free Both contributions for 2013 and distributions in 2013. Handrblock free   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Handrblock free 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. Handrblock free (See Nondeductible Contributions and Worksheet 1-2, later. Handrblock free ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Handrblock free To do this, you can use Worksheet 1-5, later. Handrblock free   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. Handrblock free 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. Handrblock free Figuring Your Reduced IRA Deduction for 2013. Handrblock free The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. Handrblock free If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. Handrblock free Note. Handrblock free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Handrblock free Worksheet 1-1. Handrblock free Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. Handrblock free 1. Handrblock free 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. Handrblock free   2. Handrblock free Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. Handrblock free   3. Handrblock free Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Handrblock free   4. Handrblock free Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. Handrblock free   5. Handrblock free Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Handrblock free   6. Handrblock free Enter any foreign housing deduction from Form 2555, line 50 6. Handrblock free   7. Handrblock free Enter any excludable savings bond interest from Form 8815, line 14 7. Handrblock free   8. Handrblock free Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Handrblock free   9. Handrblock free Add lines 1 through 8. Handrblock free This is your Modified AGI for traditional IRA purposes 9. Handrblock free   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Handrblock free If you file Form 1040A, enter your IRA deduction on line 17 of that form. Handrblock free If you file Form 1040NR, enter your IRA deduction on line 32 of that form. Handrblock free You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. Handrblock free Self-employed. Handrblock free   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. Handrblock free If you file Form 1040NR, enter your deduction on line 28 of that form. Handrblock free 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. Handrblock free The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Handrblock free Example. Handrblock free Tony is 29 years old and single. Handrblock free In 2013, he was covered by a retirement plan at work. Handrblock free His salary is $62,000. Handrblock free His modified AGI is $70,000. Handrblock free Tony makes a $5,500 IRA contribution for 2013. Handrblock free Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. Handrblock free He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Handrblock free Repayment of reservist distributions. Handrblock free   Nondeductible contributions may include repayments of qualified reservist distributions. Handrblock free For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. Handrblock free Form 8606. Handrblock free   To designate contributions as nondeductible, you must file Form 8606. Handrblock free (See the filled-in Forms 8606 in this chapter. Handrblock free )   You do not have to designate a contribution as nondeductible until you file your tax return. Handrblock free When you file, you can even designate otherwise deductible contributions as nondeductible contributions. Handrblock free   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Handrblock free    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. Handrblock free In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Handrblock free See Form 8606 under Distributions Fully or Partly Taxable, later. Handrblock free Failure to report nondeductible contributions. Handrblock free   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. Handrblock free All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Handrblock free Penalty for overstatement. Handrblock free   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. Handrblock free Penalty for failure to file Form 8606. Handrblock free   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. Handrblock free Tax on earnings on nondeductible contributions. Handrblock free   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. Handrblock free Cost basis. Handrblock free   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Handrblock free Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Handrblock free    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. Handrblock free See Are Distributions Taxable, later, for more information. Handrblock free Recordkeeping. Handrblock free There is a recordkeeping worksheet, Appendix A. Handrblock free Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. Handrblock free 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. Handrblock free Example 1. Handrblock free For 2013, Tom and Betty file a joint return on Form 1040. Handrblock free They are both 39 years old. Handrblock free They are both employed and Tom is covered by his employer's retirement plan. Handrblock free Tom's salary is $59,000 and Betty's is $32,555. Handrblock free They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Handrblock free 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 . Handrblock free For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Handrblock free Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. Handrblock free Tom can take a deduction of only $5,080. Handrblock free He can choose to treat the $5,080 as either deductible or nondeductible contributions. Handrblock free He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Handrblock free He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. Handrblock free Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Handrblock free Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. Handrblock free Betty figures her IRA deduction as follows. Handrblock free Betty can treat all or part of her contributions as either deductible or nondeductible. Handrblock free 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 . Handrblock free 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. Handrblock free Betty decides to treat her $5,500 IRA contributions as deductible. Handrblock free The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. Handrblock free Example 2. Handrblock free For 2013, Ed and Sue file a joint return on Form 1040. Handrblock free They are both 39 years old. Handrblock free Ed is covered by his employer's retirement plan. Handrblock free Ed's salary is $45,000. Handrblock free Sue had no compensation for the year and did not contribute to an IRA. Handrblock free Sue is not covered by an employer plan. Handrblock free Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Handrblock free 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. Handrblock free Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. Handrblock free He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Handrblock free Sue figures her IRA deduction as shown on Worksheet 1-2. Handrblock free Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. Handrblock free Worksheet 1-2. Handrblock free 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. Handrblock free ) Note. Handrblock free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Handrblock free IF you . Handrblock free . Handrblock free . Handrblock free AND your  filing status is . Handrblock free . Handrblock free . Handrblock free AND your modified AGI is over . Handrblock free . Handrblock free . Handrblock free THEN enter on  line 1 below . Handrblock free . Handrblock free . Handrblock free       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. Handrblock free Enter applicable amount from table above 1. Handrblock free   2. Handrblock free Enter your modified AGI (that of both spouses, if married filing jointly) 2. Handrblock free     Note. Handrblock free If line 2 is equal to or more than the amount on line 1, stop here. Handrblock free  Your IRA contributions are not deductible. Handrblock free See Nondeductible Contributions , earlier. Handrblock free     3. Handrblock free Subtract line 2 from line 1. Handrblock free 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. Handrblock free 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. Handrblock free   4. Handrblock free Multiply line 3 by the percentage below that applies to you. Handrblock free If the result is not a multiple of $10, round it to the next highest multiple of $10. Handrblock free (For example, $611. Handrblock free 40 is rounded to $620. Handrblock free ) However, if the result is less than $200, enter $200. Handrblock free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Handrblock free 5% (. Handrblock free 275) (by 32. Handrblock free 5% (. Handrblock free 325) if you are age 50 or older). Handrblock free All others, multiply line 3 by 55% (. Handrblock free 55) (by 65% (. Handrblock free 65) if you are age 50 or older). Handrblock free 4. Handrblock free   5. Handrblock free 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). Handrblock free 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. Handrblock free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Handrblock free   6. Handrblock free 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). Handrblock free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Handrblock free 6. Handrblock free   7. Handrblock free IRA deduction. Handrblock free Compare lines 4, 5, and 6. Handrblock free 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. Handrblock free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Handrblock free   8. Handrblock free Nondeductible contribution. Handrblock free Subtract line 7 from line 5 or 6, whichever is smaller. Handrblock free  Enter the result here and on line 1 of your Form 8606 8. Handrblock free   Worksheet 1-2. Handrblock free 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. Handrblock free ) Note. Handrblock free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Handrblock free IF you . Handrblock free . Handrblock free . Handrblock free AND your  filing status is . Handrblock free . Handrblock free . Handrblock free AND your modified AGI is over . Handrblock free . Handrblock free . Handrblock free THEN enter on  line 1 below . Handrblock free . Handrblock free . Handrblock free       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. Handrblock free Enter applicable amount from table above 1. Handrblock free 115,000 2. Handrblock free Enter your modified AGI (that of both spouses, if married filing jointly) 2. Handrblock free 96,555   Note. Handrblock free If line 2 is equal to or more than the amount on line 1, stop here. Handrblock free  Your IRA contributions are not deductible. Handrblock free See Nondeductible Contributions , earlier. Handrblock free     3. Handrblock free Subtract line 2 from line 1. Handrblock free 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. Handrblock free 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. Handrblock free 18,445 4. Handrblock free Multiply line 3 by the percentage below that applies to you. Handrblock free If the result is not a multiple of $10, round it to the next highest multiple of $10. Handrblock free (For example, $611. Handrblock free 40 is rounded to $620. Handrblock free ) However, if the result is less than $200, enter $200. Handrblock free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Handrblock free 5% (. Handrblock free 275) (by 32. Handrblock free 5% (. Handrblock free 325) if you are age 50 or older). Handrblock free All others, multiply line 3 by 55% (. Handrblock free 55) (by 65% (. Handrblock free 65) if you are age 50 or older). Handrblock free 4. Handrblock free 5,080 5. Handrblock free 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). Handrblock free 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. Handrblock free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Handrblock free 59,000 6. Handrblock free 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). Handrblock free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Handrblock free 6. Handrblock free 5,500 7. Handrblock free IRA deduction. Handrblock free Compare lines 4, 5, and 6. Handrblock free 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. Handrblock free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Handrblock free 5,080 8. Handrblock free Nondeductible contribution. Handrblock free Subtract line 7 from line 5 or 6, whichever is smaller. Handrblock free  Enter the result here and on line 1 of your Form 8606 8. Handrblock free 420 Worksheet 1-2. Handrblock free 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. Handrblock free ) Note. Handrblock free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Handrblock free IF you . Handrblock free . Handrblock free . Handrblock free AND your  filing status is . Handrblock free . Handrblock free . Handrblock free AND your modified AGI is over . Handrblock free . Handrblock free . Handrblock free THEN enter on  line 1 below . Handrblock free . Handrblock free . Handrblock free       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. Handrblock free Enter applicable amount from table above 1. Handrblock free 188,000 2. Handrblock free Enter your modified AGI (that of both spouses, if married filing jointly) 2. Handrblock free 180,555   Note. Handrblock free If line 2 is equal to or more than the amount on line 1, stop here. Handrblock free  Your IRA contributions are not deductible. Handrblock free See Nondeductible Contributions , earlier. Handrblock free     3. Handrblock free Subtract line 2 from line 1. Handrblock free 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. Handrblock free 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. Handrblock free 7,445 4. Handrblock free Multiply line 3 by the percentage below that applies to you. Handrblock free If the result is not a multiple of $10, round it to the next highest multiple of $10. Handrblock free (For example, $611. Handrblock free 40 is rounded to $620. Handrblock free ) However, if the result is less than $200, enter $200. Handrblock free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Handrblock free 5% (. Handrblock free 275) (by 32. Handrblock free 5% (. Handrblock free 325) if you are age 50 or older). Handrblock free All others, multiply line 3 by 55% (. Handrblock free 55) (by 65% (. Handrblock free 65) if you are age 50 or older). Handrblock free 4. Handrblock free 4,100 5. Handrblock free 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). Handrblock free 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. Handrblock free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Handrblock free 39,500 6. Handrblock free 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). Handrblock free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Handrblock free 6. Handrblock free 5,500 7. Handrblock free IRA deduction. Handrblock free Compare lines 4, 5, and 6. Handrblock free 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. Handrblock free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Handrblock free 4,100 8. Handrblock free Nondeductible contribution. Handrblock free Subtract line 7 from line 5 or 6, whichever is smaller. Handrblock free  Enter the result here and on line 1 of your Form 8606 8. Handrblock free 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. Handrblock free A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Handrblock free Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Handrblock free Inherited from spouse. Handrblock free   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Handrblock free You can: Treat it as your own IRA by designating yourself as the account owner. Handrblock free 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