Top Year-End IRA Reminders

Individual Retirement Accounts, or IRAs, are important vehicles for you to save for your future retirement.  There are four key year-end rules that you need to know.

·  Know your contribution and deduction limits.  

      If you are age under 50 and single, you can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, both you and your spouse can each contribute to an IRA even if only one of you has taxable earned income. You have until April 17, 2017, to make your IRA contribution for 2016.  If you or your spouse has a retirement plan at work and your income is above a certain level, you may need to reduce your deduction for your traditional IRA contributions.

·  Avoid excess contributions.

      If you contribute more than the IRA limits for 2016, you will be subject to a 6% tax on the excess amount. This tax applies each year as long as the excess amounts remain in your account. You can avoid the 6% tax if you withdraw the excess amounts from your IRA account by the due date of your 2016 tax return.

·  Take required minimum distributions.  

      If you reach age 70½, you must take a required minimum distribution (RMD) from your traditional IRA.  However, you are not required to take any RMD from your Roth IRA.  If you have more than one traditional IRA, you will figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of your IRA accounts. If you don’t take your RMD on time, you will face a 50% excise tax on the RMD amount that you failed to take out.

·  IRA distributions may affect your premium tax credit. 

      If you take a distribution from your traditional IRA at the end of the year and expect to claim the Premium Tax Credit (PTC), you should exercise caution regarding the amount of the distribution that you want to withdraw.  It is because taxable IRA distributions will increase your household income.  It can disqualified you for the PTC.  In other words, you will become ineligible if the increased distribution amount causes your household income for the year to be above 400% of the Federal poverty line for your family size. In this case, you will have to repay the entire amount of any advance payments of the premium tax credit that were made to your health insurance provider on your behalf. 

Premium Tax Credit

If you have any questions, please feel free to email us.

Your comments and feed backs are welcome.

Source:  www.irs.gov.

Email:   Excellent-tax@gmx.com