|Tax Topic #451
||2008 Tax Year
Topic 451 - Individual Retirement Arrangements (IRAs)
An individual retirement arrangement, or IRA, is a personal savings plan
which allows you to set aside money for retirement, while offering you tax
advantages. You may be able to deduct some or all of your contributions to
your IRA. You may also be eligible for a tax credit equal to a percentage
of your contribution. Amounts in your IRA, including earnings, generally are
not taxed until distributed to you. IRA's cannot be owned jointly. However,
any amounts remaining in your IRA upon your death can be paid to your beneficiary
To contribute to a traditional IRA, you must be under age 70 1/2 at the
end of the tax year. You, and/or your spouse if you file a joint return, must
have taxable compensation, such as wages, salaries, commissions, tips, bonuses,
or net income from self–employment. Taxable alimony
and separate maintenance payments received by an individual are treated as
compensation for IRA purposes.
Compensation does not include earnings and profits from property, such
as rental income, interest and dividend income or any amount received as pension
or annuity income, or as deferred compensation.
Please refer to Publication 590 for information on the
amounts you will be eligible to contribute to your IRA account.
Figure your deduction using the worksheets in the Form 1040 Instructions, Form 1040A Instructions or in Publication
590. You cannot claim an IRA deduction on Form 1040EZ; you must use either Form 1040A (PDF) or Form 1040 (PDF).
If you made nondeductible contributions to a traditional IRA you would need
to attach Form 8606 (PDF), Nondeductible IRA's.
Use Form 8880 (PDF), Credit for Qualified Retirement
Savings Contributions, to determine whether you are also eligible for
a tax credit. Enter the amount of the credit on either Form 1040A or Form
1040. You cannot use Form 1040EZ to claim this credit.
The deadline for contributions to a traditional IRA for the year is the
due date of your return, not including any extensions of time to file.
Amounts you withdraw from your IRA are fully or partially taxable in the
year you withdraw them. If you made only deductible contributions, withdrawals
are fully taxable. Use Form 8606 to figure the taxable portion of withdrawals.
Withdrawals made prior to age 59 1/2 may be subject to a 10% additional
tax. You also may owe an excise tax if you do not begin to withdraw minimum
distributions by April 1st of the year after you reach age 70 1/2. These additional
taxes are figured and reported on Form 5329 (PDF).
Refer to Form 5329 Instructions for exceptions to the
additional taxes. For information on Roth IRA contributions or distributions,
refer to Topic 309. For information on conversions from a traditional
IRA to a Roth IRA, refer to Publication 590.
Page Last Reviewed or Updated: December 22, 2008
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