Understanding IRA Contributions: From Deadlines to Deductibility Rules

©2011 Ascensus, Inc.

IRA ContributionsIRA Contributions

February 2011 (030111-v29)


Course ObjectivesCourse Objectives

• List eligibility rules for regular, spousal, and catch-up contributions to Traditional and Roth IRAs

• Explain the contribution limit for an individual• State the contribution deadline• Determine if an IRA contribution is deductible

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Course Objectives (continued)Course Objectives (continued)

• Understand when certain individuals may receive a tax credit for IRA contributions

• Accurately report regular, spousal, and catch-up contributions to Traditional and Roth IRAs

• Explain the IRA contribution deadline for certain military personnel

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Traditional IRA ContributionsTraditional IRA Contributions

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Traditional IRA

Catch-Up

Transfer Recharacterization

SEP

Regular Spousal

Rollover


Traditional IRA Contribution Eligibility Traditional IRA Contribution Eligibility

Regular Contribution• Under 70½ year• Has earned income

Spousal Contribution• Under 70½ year• Couple has earned

income• Married, filing joint

federal tax return

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Traditional IRA Contribution Eligibility (continued) Traditional IRA Contribution Eligibility (continued)

Catch-Up Contribution• Eligible for regular or spousal Traditional IRA

contribution• Has earned income (or couple has earned income if

joint filer) to support additional contribution• Attain age 50 before end of tax year

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Traditional IRA Contribution LimitsTraditional IRA Contribution Limits

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YearMaximum individual

contribution (regular/spousal)Maximum catch-up

contribution

2010 $5,000* $1,000*

2011 $5,000* $1,000*

*Reduced by any Roth IRA contributions made for the same year


Polling QuestionPolling Question

Do you use an IRA eligibility form?

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Traditional IRA Contribution Deductibility Traditional IRA Contribution Deductibility

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No Yes

The deductibility of the contribution

depends on MAGI

The deductibility of the contribution

depends on MAGI

The contribution is deductible

The contribution is deductible

The deductibility of the contribution depends

on MAGI

The deductibility of the contribution depends

on MAGI

Is the IRA owner an active participant?

Is the IRA owner an active participant?

No Yes

Is the IRA owner married to an active

participant?

Is the IRA owner married to an active

participant?


Traditional IRA Active Participant MAGI Limits Traditional IRA Active Participant MAGI Limits

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Tax YearMarried filing a

joint returnMarried filing a

separate returnSingle filer

2010 $89,000 –

$109,000 $0 –

$10,000 $56,000 –

$66,000

2011 $90,000 –

$110,000 $0 –

$10,000 $56,000 –

$66,000


Traditional IRA Nonactive Participant MAGI Limits Traditional IRA Nonactive Participant MAGI Limits

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2010 2011

Active Participant: $89,000 –

$109,000 $90,000 –

$110,000

Nonactive

Participant: $167,000 –

$177,000 $169,000 –

$179,000


Deductibility FormulaDeductibility Formula

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( )maximum contribution including catch-up contributions

maximum deductibility threshold – MAGI

maximum deductibility threshold –minimum deductibility threshold

= deduction limitX


Roth IRA ContributionsRoth IRA Contributions

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Roth IRA

Catch-Up

Rollover Conversion

Recharacterization

Regular Spousal

Transfer


Roth IRA Contribution EligibilityRoth IRA Contribution Eligibility

Regular Contribution• No age restriction• Has earned income• MAGI within limits

Spousal Contribution• No age restriction• Couple has earned

income• Married, filing joint

federal tax return• MAGI below or

within limits

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Roth IRA Contribution EligibilityRoth IRA Contribution Eligibility

Catch-Up Contribution• Eligible for regular or spousal Roth IRA contribution• Has earned income (or couple has earned income if

joint filer) to support additional contribution• Attain age 50 before end of tax year

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Roth IRA Contribution LimitsRoth IRA Contribution Limits

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YearMaximum individual

contribution (regular/spousal)Maximum catch-up

contribution

2010 $5,000* $1,000*

2011 $5,000* $1,000*

*Reduced by any Traditional IRA contributions made for the same year


Roth IRA Contribution Eligibility MAGI Limits Roth IRA Contribution Eligibility MAGI Limits

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Tax YearMarried filing a

joint returnMarried filing a

separate returnSingle filer

2010 $167,000 –

$177,000 $0 –

$10,000 $105,000 –

$120,000

2011 $169,000 –

$179,000 $0 –

$10,000 $107,000 –

$122,000


Tax CreditTax Credit

• Nonrefundable • Offsets cost of first $2,000 contributed to an IRA • Not to exceed $1,000 annually• PPA makes it permanent• Possible COLAs in future years

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Tax Credit EligibilityTax Credit Eligibility

• Attain age 18 by end of taxable year• Have AGI within limits • Not a dependent• Not a full-time student

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April 1520112010

Contribution DeadlineContribution Deadline

NOTE: April 15, 2011, is a legal holiday; therefore, IRA owners have until April 18, 2011, to make 2010 contributions. IRA owners who file with the Andover, MA, IRS Service Center have until April 19, 2011, to make 2010 contributions.

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January 1


Contribution ReportingContribution Reporting

• Contribution information reported to IRA owner and IRS on Form 5498

• Due by May 31• File with IRS on paper or electronically• Submit paper Forms 5498 to IRS with Form 1096• Make corrections as soon as possible

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Contribution Reporting – IRS Form 5498Contribution Reporting – IRS Form 5498

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Fair Market Value StatementFair Market Value Statement

• Use Dec. 31 value• Due to IRA owner or beneficiary by Jan. 31

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Annual Account StatementAnnual Account Statement

• Contribution information• Use own format or Form 5498• Due to IRA owner or beneficiary by May 31

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Polling QuestionPolling Question

Do you use Form 5498 to satisfy the annual account statement requirement?

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IRS

IRA Owner

Form 5498Form 1040Form 8606

Annual Account Statement and FMV Statement Financial

Organization

Contribution ReportingContribution Reporting

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Military Personnel IRA ContributionsMilitary Personnel IRA Contributions

• HERO Act allows individuals to use nontaxable combat pay to fund IRAs

• File separate From 5498 using special reporting requirements for military personnel in designated combat zones

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Military Personnel Postponed Contribution Deadline Military Personnel Postponed Contribution Deadline

• Armed forces personnel in combat zones, hazardous duty areas, and contingency operations

• Certain Red Cross personnel, correspondents, and civilians serving qualified areas

• Merchant Mariners (Iraqi Freedom)• Spouses and dependents of all of the above

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Military Personnel Postponed Contribution Deadline (continued) Military Personnel Postponed Contribution Deadline (continued)

Date left combat zone or hospitalization+ 180 days+ days left to contribute from date IRA owner

entered qualifying area____________________________________

= Deadline

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Entered combat zone

2010 2011 2012

12/15 4/15 9/2 7/1

122 days left to deposit 2010 contribution

302 days (180 + 122) to make

2010 contribution

Left combat zone

Military Personnel Postponed Contribution Deadline Example Military Personnel Postponed Contribution Deadline Example

2010 contribution deadline

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Combat Zone Contribution ReportingCombat Zone Contribution Reporting

Two Methods1. Use applicable prior-year Form 5498 for year

contribution is foror

2. Use current-year Form 5498 for prior-year contribution

– Contribution amount in Box 13a– Contribution tax year in Box 13b– Applicable military operation indicator code in Box 13c

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Method 2 Example – Current-Year Form 5498

Combat Zone Contribution ReportingCombat Zone Contribution Reporting

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4,000 2008 IF


Qualified Reservist RepaymentsQualified Reservist Repayments• Created by PPA• May recontribute distributions to an IRA within two

years following the end of the active duty period• Repayments are recontributed as after-tax dollars

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Qualified Reservist Repayment Reporting Qualified Reservist Repayment Reporting

• Enter contribution amount in Box 14a and enter indicator code “QR” in Box 14b of 2010 Form 5498

• IRA owner may need to amend tax return and file Form 8606

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HEART ActHEART Act

• Individuals may roll over military death gratuity and Servicemembers’ Group Life Insurance payments to Roth IRAs and Coverdell ESAs

• Report the rollover contribution amount in Box 2 of Form 5498 if death occurred after June 17, 2008, and amounts deposited within one year

• Employer-provided differential pay treated as wages for retirement plan purposes

• Allows employers to treat former employees killed or disabled on active duty as having returned to employment

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Contact...Contact...

Tammy Schultz, CISP, QKAAscensus

[email protected]

www.nafcu.org/ascensus

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Understanding IRA Contributions: From Deadlines to Deductibility Rules