Excellent Tax Services: Top Four Year-End IRA Reminders

Contribution Limits

Individual Retirement Accounts (IRAs) are an important way for anyone to save for retirement. If you already have an IRA or may open one soon in the near future, there are some key year-end rules that you may want to know. Below are the top four reminders on IRAs:

1. Know the limits. You can only 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 compensation (earned income). In some cases, you may need to reduce your deduction for traditional IRA contributions if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014.

2. Avoid excess contributions. If you contribute more than the IRA limits for 2014, you will be subject to a six percent tax on the excess amount. The tax applies each year as long as the excess amounts remain in your account. You can avoid this tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return which is April 15 of 2015 (including extensions).

3. Take required distributions. If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. However, you are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. If you turned 70½ in 2014, the deadline is April 1, 2015. If you don’t take your RMD on time you will face a 50 percent excise tax on the RMD amount you failed to take out.

4. Claim the Saver’s credit. The formal name of the Saver’s credit is the retirement savings contributions credit. If you are a low-to-moderate income worker, you can take steps now to save two ways for the same amount. You can save for your retirement and also save on your taxes with the Saver’s tax credit. Here are six tips that you may want to know about this credit:

Save for retirement. You may be able to claim this tax credit in addition to any other tax savings. The Saver’s credit helps offset part of the first $2,000 you voluntarily save for your retirement. This includes amounts you contribute to IRAs, 401(k) plans and similar workplace plans.
Save on taxes. The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000 per person or $2,000 for married couples. Because of the deductions and other credits that you may claim, the credit you actually receive is often much less.
Income limits. Income limits vary based on your filing status. You may be able to claim the Saver’s credit if you’re a:

Married couples filing jointly with income up to $60,000 in 2014 or $61,000 in 2015.
Head of Household with income up to $45,000 in 2014 or $45,750 in 2015.
Married person filing separately or single with income up to $30,000 in 2014 or $30,500 in 2015.

When to contribute. If you’re eligible you still have time to contribute and get the Saver’s credit on your 2014 tax return. You will have until April 15, 2015, to set up a new IRA or add money to an existing IRA for 2014. You must make contribution by the end of the year to a 401(k) plan or similar workplace program.
Other special rules that apply to the credit include the following: