Wednesday, April 13, 2011

Still time to contribute to an IRA and save money on your taxes

You still have five days left to save money on your 2010 income taxes.

Generally you can deduct contributions made to a traditional Individual Retirement Arrangement (IRA) on line 32 of Form 1040. Do not confuse a Traditional IRA with a Roth IRA, contributions to a Roth IRA are never deducted as an adjustment to income.

Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution. Use the IRA Deduction Worksheet to figure your deduction for IRA contributions.

You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA and must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590 Individual Retirement Arrangements for additional rules.

For 2011, the most that can be contributed to your IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.

Use Form 8880 Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

Year Maximum IRA Contribution
Under Age 50
Maximum IRA Contribution
Age 50+
2008-2011 $5,000/year $6,000/year
2006-2007 $4,000/year $5,000/year
2005 $4,000/year $4,500/year
2002-2004 $3,000/year $3,500/year

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