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Traditional IRAs

Deadline To Establish An IRA
An IRA can be established and funded at any time between January 1 of the current year, up to and including the date an individual’s income tax return is due (generally April 15 of the following year), not including extensions.

Can Deductions Be Taken Prior To Investment OF The Funds?
Yes! This, in effect, permits an individual to file his return early in the year; e.g., January, and use his or her tax refund to make the actual contribution prior to April 15. Revenue Ruling 84-18, 1984-1 C.B. 88

Types Of Arrangements Permitted

There are currently two types of IRAs:

A. Individual Retirement Accounts:
A trust with a corporate trustee or a custodial account.

B. Individual Retirement Annuities:
This is a special annuity issued by an insurance company.

Contribution And Deduction Limits

A wage earned may contribute and deduct the lesser of $3,000 or 100% of earned income for the year. If the wage earner is married, an additional $3,000 may be contributed and deducted on behalf of a lesser earning (or nonworking) spouse, using a “spousal” IRA account.

Other Retirement Plans May Reduce, Or Eliminate Deductions
Taxpayers (and their spouses) who both participate in an employer’s plan can make fully deductible IRA contributions only if their adjusted gross income is below $53,000 if married filing jointly, $33,000 if a single taxpayer, and zero if married filing separately. If adjusted gross income exceeds these amounts, the $4,000 joint or $2,000 individual limit is reduced by a formula which eventually permits no deduction.

For example, no IRA contributions deducted for married couples (filing jointly) with adjusted gross income over $63,000, single person over $43,000, and married filing separately over $10,000. However, for a taxpayer who is not an active participant in an employer sponsored plan, but whose spouse is, the maximum deductible IRA contribution is $2,000. The deduction is phased out for these taxpayers with joint adjusted gross income between $150,000 and $160,000.



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