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Irs free 17. Irs free   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. Irs free  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Irs free If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Irs free For more information, see How Much Can Be Contributed? later. Irs free Roth IRA contribution limit. Irs free  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Irs free If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Irs free However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Irs free For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Irs free Modified AGI limit for traditional IRA contributions increased. Irs free  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Irs free If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Irs free If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Irs free See How Much Can You Deduct , later. Irs free Modified AGI limit for Roth IRA contributions increased. Irs free  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Irs free Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Irs free You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Irs free Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Irs free You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Irs free Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Irs free You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Irs free See Can You Contribute to a Roth IRA , later. Irs free Net Investment Income Tax. Irs free   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Irs free However, these distributions are taken into account when determining the modified adjusted gross income threshold. Irs free Distributions from a nonqualified retirement plan are included in net investment income. Irs free See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Irs free Name change. Irs free  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Irs free There are no changes to the rules regarding these IRAs. Irs free See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Irs free Reminders 2014 limits. Irs free   You can find information about the 2014 contribution and AGI limits in Publication 590. Irs free Contributions to both traditional and Roth IRAs. Irs free   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. Irs free Statement of required minimum distribution. Irs free  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. Irs free The report or offer must include the date by which the amount must be distributed. Irs free The report is due January 31 of the year in which the minimum distribution is required. Irs free It can be provided with the year-end fair market value statement that you normally get each year. Irs free No report is required for IRAs of owners who have died. Irs free IRA interest. Irs free  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Irs free Tax on your traditional IRA is generally deferred until you take a distribution. Irs free Do not report this interest on your tax return as tax-exempt interest. Irs free Form 8606. Irs free   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Irs free The term “50 or older” is used several times in this chapter. Irs free It refers to an IRA owner who is age 50 or older by the end of the tax year. Irs free Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Irs free This chapter discusses the following topics. Irs free The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Irs free The Roth IRA, which features nondeductible contributions and tax-free distributions. Irs free Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Irs free For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Irs free For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Irs free Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Irs free ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Irs free Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Irs free Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Irs free What is compensation?   Generally, compensation is what you earn from working. Irs free Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Irs free The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Irs free   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Irs free   Compensation also includes commissions and taxable alimony and separate maintenance payments. Irs free Self-employment income. Irs free   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. Irs free   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Irs free Nontaxable combat pay. Irs free   For IRA purposes, if you were a member of the U. Irs free S. Irs free Armed Forces, your compensation includes any nontaxable combat pay you receive. Irs free What is not compensation?   Compensation does not include any of the following items. Irs free Earnings and profits from property, such as rental income, interest income, and dividend income. Irs free Pension or annuity income. Irs free Deferred compensation received (compensation payments postponed from a past year). Irs free Income from a partnership for which you do not provide services that are a material income-producing factor. Irs free Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Irs free Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Irs free When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Irs free However, the time for making contributions for any year is limited. Irs free See When Can Contributions Be Made , later. Irs free You can open different kinds of IRAs with a variety of organizations. Irs free You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Irs free You can also open an IRA through your stockbroker. Irs free Any IRA must meet Internal Revenue Code requirements. Irs free Kinds of traditional IRAs. Irs free   Your traditional IRA can be an individual retirement account or annuity. Irs free It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Irs free How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Irs free These limits and other rules are explained below. Irs free Community property laws. Irs free   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. Irs free This is the rule even in states with community property laws. Irs free Brokers' commissions. Irs free   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Irs free Trustees' fees. Irs free   Trustees' administrative fees are not subject to the contribution limit. Irs free Qualified reservist repayments. Irs free   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. Irs free You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Irs free To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. Irs free   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Irs free Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Irs free (See Roth IRAs, later. Irs free ) General limit. Irs free   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Irs free $5,500 ($6,500 if you are 50 or older). Irs free Your taxable compensation (defined earlier) for the year. Irs free This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Irs free (See Nondeductible Contributions , later. Irs free ) Qualified reservist repayments do not affect this limit. Irs free Example 1. Irs free Betty, who is 34 years old and single, earned $24,000 in 2013. Irs free Her IRA contributions for 2013 are limited to $5,500. Irs free Example 2. Irs free John, an unmarried college student working part time, earned $3,500 in 2013. Irs free His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Irs free Kay Bailey Hutchison Spousal IRA limit. Irs free   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. Irs free $5,500 ($6,500 if you are 50 or older). Irs free The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Irs free Your spouse's IRA contribution for the year to a traditional IRA. Irs free Any contribution for the year to a Roth IRA on behalf of your spouse. Irs free This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). Irs free When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Irs free Contributions must be in the form of money (cash, check, or money order). Irs free Property cannot be contributed. Irs free Contributions must be made by due date. Irs free   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Irs free Age 70½ rule. Irs free   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Irs free   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Irs free If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Irs free Designating year for which contribution is made. Irs free   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Irs free If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Irs free Filing before a contribution is made. Irs free   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Irs free Generally, the contribution must be made by the due date of your return, not including extensions. Irs free Contributions not required. Irs free   You do not have to contribute to your traditional IRA for every tax year, even if you can. Irs free How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). Irs free However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Irs free See Limit If Covered by Employer Plan , later. Irs free You may be able to claim a credit for contributions to your traditional IRA. Irs free For more information, see chapter 37. Irs free Trustees' fees. Irs free   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Irs free However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Irs free See chapter 28. Irs free Brokers' commissions. Irs free   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Irs free Full deduction. Irs free   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). Irs free 100% of your compensation. Irs free This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Irs free Kay Bailey Hutchison Spousal IRA. Irs free   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. Irs free $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Irs free The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Irs free The IRA deduction for the year of the spouse with the greater compensation. Irs free Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Irs free Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Irs free This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Irs free Note. Irs free If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Irs free After a divorce or legal separation, you can deduct only contributions to your own IRA. Irs free Your deductions are subject to the rules for single individuals. Irs free Covered by an employer retirement plan. Irs free   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Irs free This is discussed later under Limit If Covered by Employer Plan . Irs free Limits on the amount you can deduct do not affect the amount that can be contributed. Irs free See Nondeductible Contributions , later. Irs free Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Irs free The “Retirement plan” box should be checked if you were covered. Irs free Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Irs free If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Irs free Federal judges. Irs free   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Irs free For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. Irs free These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Irs free Tax year. Irs free   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Irs free For almost all people, the tax year is the calendar year. Irs free Defined contribution plan. Irs free   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Irs free   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Irs free Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Irs free Defined benefit plan. Irs free   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Irs free This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Irs free   A defined benefit plan is any plan that is not a defined contribution plan. Irs free Defined benefit plans include pension plans and annuity plans. Irs free No vested interest. Irs free   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Irs free Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Irs free Social security or railroad retirement. Irs free   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Irs free Benefits from a previous employer's plan. Irs free   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Irs free Reservists. Irs free   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. Irs free You are not covered by the plan if both of the following conditions are met. Irs free The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Irs free You did not serve more than 90 days on active duty during the year (not counting duty for training). Irs free Volunteer firefighters. Irs free   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Irs free You are not covered by the plan if both of the following conditions are met. Irs free The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Irs free Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Irs free Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Irs free Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Irs free These amounts vary depending on your filing status. Irs free To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Irs free See Filing status and Modified adjusted gross income (AGI) , later. Irs free Then use Table 17-1 or 17-2 to determine if the phaseout applies. Irs free Social security recipients. Irs free   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. Irs free You received social security benefits. Irs free You received taxable compensation. Irs free Contributions were made to your traditional IRA. Irs free You or your spouse was covered by an employer retirement plan. Irs free Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Irs free Deduction phaseout. Irs free   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. Irs free Table 17-1. Irs free Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Irs free IF your filing status is. Irs free . Irs free . Irs free   AND your modified AGI is. Irs free . Irs free . Irs free   THEN you can take. Irs free . Irs free . Irs free single   or  head of household   $59,000 or less   a full deduction. Irs free   more than $59,000 but less than $69,000   a partial deduction. Irs free   $69,000 or more   no deduction. Irs free married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Irs free   more than $95,000 but less than $115,000   a partial deduction. Irs free   $115,000 or more   no deduction. Irs free married filing separately2   less than $10,000   a partial deduction. Irs free   $10,000 or more   no deduction. Irs free 1Modified AGI (adjusted gross income). Irs free See Modified adjusted gross income (AGI) . Irs free 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). Irs free If your spouse is covered. Irs free   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. Irs free Filing status. Irs free   Your filing status depends primarily on your marital status. Irs free For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Irs free If you need more information on filing status, see chapter 2. Irs free Lived apart from spouse. Irs free   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Irs free Table 17-2. Irs free Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Irs free IF your filing status is. Irs free . Irs free . Irs free   AND your modified AGI is. Irs free . Irs free . Irs free   THEN you can take. Irs free . Irs free . Irs free single, head of household, or qualifying widow(er)   any amount   a full deduction. Irs free married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Irs free married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Irs free   more than $178,000 but less than $188,000   a partial deduction. Irs free   $188,000 or more   no deduction. Irs free married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Irs free   $10,000 or more   no deduction. Irs free 1Modified AGI (adjusted gross income). Irs free See Modified adjusted gross income (AGI) . Irs free 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Irs free Modified adjusted gross income (AGI). Irs free   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Irs free If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Irs free You may be able to use Worksheet 17-1 to figure your modified AGI. Irs free    Do not assume that your modified AGI is the same as your compensation. Irs free Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Irs free Form 1040. Irs free   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. Irs free IRA deduction. Irs free Student loan interest deduction. Irs free Tuition and fees deduction. Irs free Domestic production activities deduction. Irs free Foreign earned income exclusion. Irs free Foreign housing exclusion or deduction. Irs free Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Irs free S. Irs free Savings Bonds Issued After 1989. Irs free Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Irs free This is your modified AGI. Irs free Form 1040A. Irs free   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Irs free IRA deduction. Irs free Student loan interest deduction. Irs free Tuition and fees deduction. Irs free Exclusion of qualified savings bond interest shown on Form 8815. Irs free This is your modified AGI. Irs free Both contributions for 2013 and distributions in 2013. Irs free   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Irs free You received distributions in 2013 from one or more traditional IRAs. Irs free You made contributions to a traditional IRA for 2013. Irs free Some of those contributions may be nondeductible contributions. Irs free If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Irs free To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Irs free   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Irs free    How to figure your reduced IRA deduction. Irs free   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Irs free Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Irs free Worksheet 17-1. Irs free Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Irs free 1. Irs free Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. Irs free   2. Irs free Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Irs free   3. Irs free Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Irs free   4. Irs free Enter any domestic production activities deduction from Form 1040, line 35 4. Irs free   5. Irs free Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Irs free   6. Irs free Enter any foreign housing deduction from Form 2555, line 50 6. Irs free   7. Irs free Enter any excludable savings bond interest from Form 8815, line 14 7. Irs free   8. Irs free Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Irs free   9. Irs free Add lines 1 through 8. Irs free This is your Modified AGI for traditional IRA purposes 9. Irs free   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Irs free If you file Form 1040A, enter your IRA deduction on line 17. Irs free You cannot deduct IRA contributions on Form 1040EZ. Irs free Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Irs free The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Irs free Example. Irs free Mike is 28 years old and single. Irs free In 2013, he was covered by a retirement plan at work. Irs free His salary was $57,312. Irs free His modified AGI was $70,000. Irs free Mike made a $5,500 IRA contribution for 2013. Irs free Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Irs free He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Irs free Form 8606. Irs free   To designate contributions as nondeductible, you must file Form 8606. Irs free   You do not have to designate a contribution as nondeductible until you file your tax return. Irs free When you file, you can even designate otherwise deductible contributions as nondeductible. Irs free   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Irs free A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Irs free In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Irs free See Form 8606 under Distributions Fully or Partly Taxable, later. Irs free Failure to report nondeductible contributions. Irs free   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Irs free All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Irs free Penalty for overstatement. Irs free   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Irs free Penalty for failure to file Form 8606. Irs free   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Irs free    Tax on earnings on nondeductible contributions. Irs free   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Irs free See When Can You Withdraw or Use IRA Assets , later. Irs free Cost basis. Irs free   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Irs free Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Irs free Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Irs free A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Irs free Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Irs free Inherited from spouse. Irs free   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Irs free You can: Treat it as your own IRA by designating yourself as the account owner. Irs free Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). Irs free Treat yourself as the beneficiary rather than treating the IRA as your own. Irs free Treating it as your own. Irs free   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. Irs free You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. Irs free   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. Irs free Inherited from someone other than spouse. Irs free   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Irs free This means that you cannot make any contributions to the IRA. Irs free It also means you cannot roll over any amounts into or out of the inherited IRA. Irs free However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Irs free For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Irs free Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. Irs free You can make the following kinds of transfers. Irs free Transfers from one trustee to another. Irs free Rollovers. Irs free Transfers incident to a divorce. Irs free Transfers to Roth IRAs. Irs free   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Irs free You can also move assets from a qualified retirement plan to a Roth IRA. Irs free See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Irs free Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Irs free Because there is no distribution to you, the transfer is tax free. Irs free Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . Irs free For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. Irs free Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. Irs free The contribution to the second retirement plan is called a “rollover contribution. Irs free ” Note. Irs free An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Irs free Kinds of rollovers to a traditional IRA. Irs free   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). Irs free Treatment of rollovers. Irs free   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . Irs free Kinds of rollovers from a traditional IRA. Irs free   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Irs free These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). Irs free The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Irs free Qualified plans may, but are not required to, accept such rollovers. Irs free Time limit for making a rollover contribution. Irs free   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Irs free The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Irs free For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free Extension of rollover period. Irs free   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. Irs free For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free More information. Irs free   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Irs free Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Irs free Waiting period between rollovers. Irs free   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. Irs free You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Irs free   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Irs free Example. Irs free You have two traditional IRAs, IRA-1 and IRA-2. Irs free You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Irs free You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. Irs free However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. Irs free This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. Irs free Exception. Irs free   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free Partial rollovers. Irs free   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Irs free The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Irs free The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . Irs free Required distributions. Irs free   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Irs free Inherited IRAs. Irs free   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. Irs free See Treating it as your own , earlier. Irs free Not inherited from spouse. Irs free   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. Irs free You must withdraw the IRA assets within a certain period. Irs free For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Irs free Reporting rollovers from IRAs. Irs free   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. Irs free   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Irs free If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. Irs free If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. Irs free Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Irs free See your tax return instructions. Irs free   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. Irs free Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Irs free A qualified plan is one that meets the requirements of the Internal Revenue Code. Irs free Eligible rollover distribution. Irs free   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. Irs free A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Irs free A hardship distribution. Irs free Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. Irs free Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Irs free A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. Irs free Dividends on employer securities. Irs free The cost of life insurance coverage. Irs free Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Irs free To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Irs free See Form 8606 under Distributions Fully or Partly Taxable, later. Irs free Rollover by nonspouse beneficiary. Irs free   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. Irs free The IRA is treated as an inherited IRA. Irs free For more information about inherited IRAs, see Inherited IRAs , earlier. Irs free Reporting rollovers from employer plans. Irs free    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Irs free This amount should be shown in box 1 of Form 1099-R. Irs free From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Irs free From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Irs free Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Irs free Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Irs free Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. Irs free The transfer is tax free. Irs free For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Irs free   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Irs free The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Irs free If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Irs free However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Irs free Required distributions. Irs free   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). Irs free Income. Irs free   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Irs free These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Irs free   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. Irs free   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. Irs free   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Irs free See chapter 4. Irs free Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. Irs free This is called recharacterizing the contribution. Irs free See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Irs free How to recharacterize a contribution. Irs free   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. Irs free If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. Irs free If you recharacterize your contribution, you must do all three of the following. Irs free Include in the transfer any net income allocable to the contribution. Irs free If there was a loss, the net income you must transfer may be a negative amount. Irs free Report the recharacterization on your tax return for the year during which the contribution was made. Irs free Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Irs free No deduction allowed. Irs free   You cannot deduct the contribution to the first IRA. Irs free Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Irs free Required notifications. Irs free   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. Irs free You must make the notifications by the date of the transfer. Irs free Only one notification is required if both IRAs are maintained by the same trustee. Irs free The notification(s) must include all of the following information. Irs free The type and amount of the contribution to the first IRA that is to be recharacterized. Irs free The date on which the contribution was made to the first IRA and the year for which it was made. Irs free A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. Irs free The name of the trustee of the first IRA and the name of the trustee of the second IRA. Irs free Any additional information needed to make the transfer. Irs free Reporting a recharacterization. Irs free   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. Irs free You must treat the contribution as having been made to the second IRA. Irs free When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Irs free Violation of the rules generally results in additional taxes in the year of violation. Irs free See What Acts Result in Penalties or Additional Taxes , later. Irs free Contributions returned before the due date of return. Irs free   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Irs free If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Irs free You can do this if, for each contribution you withdraw, both of the following conditions apply. Irs free You did not take a deduction for the contribution. Irs free You withdraw any interest or other income earned on the contribution. Irs free You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Irs free If there was a loss, the net income earned on the contribution may be a negative amount. Irs free Note. Irs free To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. Irs free Earnings includible in income. Irs free   You must include in income any earnings on the contributions you withdraw. Irs free Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Irs free Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Irs free Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Irs free    Early distributions tax. Irs free   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Irs free However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. Irs free When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Irs free Eventually they must be distributed. Irs free If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. Irs free See Excess Accumulations (Insufficient Distributions) , later. Irs free The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Irs free Required minimum distribution. Irs free   The amount that must be distributed each year is referred to as the required minimum distribution. Irs free Required distributions not eligible for rollover. Irs free   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Irs free IRA owners. Irs free   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Irs free April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Irs free Distributions by the required beginning date. Irs free   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Irs free If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. Irs free   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Irs free Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. Irs free Distributions after the required beginning date. Irs free   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Irs free    Beneficiaries. Irs free   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. Irs free More information. Irs free   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Irs free Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Irs free Exceptions. Irs free   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . Irs free    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Irs free Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Irs free Qualified charitable distributions (QCD). Irs free   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Irs free Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Irs free See Qualified Charitable Distributions in Publication 590 for more information. Irs free Ordinary income. Irs free   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Irs free No special treatment. Irs free   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. Irs free Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Irs free Fully taxable. Irs free   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Irs free Because you have no basis in your IRA, any distributions are fully taxable when received. Irs free See Reporting taxable distributions on your return , later. Irs free Partly taxable. Irs free    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. Irs free These nondeductible contributions are not taxed when they are distributed to you. Irs free They are a return of your investment in your IRA. Irs free   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Irs free If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Irs free Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Irs free Form 8606. Irs free   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Irs free Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Irs free Note. Irs free If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Irs free Send it to the IRS at the time and place you would otherwise file an income tax return. Irs free Distributions reported on Form 1099-R. Irs free   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Irs free , or a similar statement. Irs free IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Irs free A number or letter code in box 7 tells you what type of distribution you received from your IRA. Irs free Withholding. Irs free   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Irs free See chapter 4. Irs free IRA distributions delivered outside the United States. Irs free   In general, if you are a U. Irs free S. Irs free citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. Irs free Reporting taxable distributions on your return. Irs free    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). Irs free If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. Irs free You cannot report distributions on Form 1040EZ. Irs free What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. Irs free There are additions to the regular tax for using your IRA funds in prohibited transactions. Irs free There are also additional taxes for the following activities. Irs free Investing in collectibles. Irs free Making excess contributions. Irs free Taking early distributions. Irs free Allowing excess amounts to accumulate (failing to take required distributions). Irs free There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Irs free Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Irs free Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Irs free The following are examples of prohibited transactions with a traditional IRA. Irs free Borrowing money from it. Irs free Selling property to it. Irs free Receiving unreasonable compensation for managing it. Irs free Using it as security for a loan. Irs free Buying property for personal use (present or future) with IRA funds. Irs free Effect on an IRA account. Irs free   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Irs free Effect on you or your beneficiary. Irs free   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. Irs free If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. Irs free For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Irs free The distribution may be subject to additional taxes or penalties. Irs free Taxes on prohibited transactions. Irs free   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. Irs free In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. Irs free More information. Irs free   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Irs free Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Irs free You may have to pay the 10% additional tax on early distributions, discussed later. Irs free Collectibles. Irs free   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Irs free Exception. Irs free    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Irs free S. Irs free gold coins, or one-ounce silver coins minted by the Treasury Department. Irs free It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Irs free Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. Irs free For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Irs free Tax on excess contributions. Irs free   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. Irs free You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Irs free The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Irs free Excess contributions withdrawn by due date of return. Irs free   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. Irs free You must complete your withdrawal by the date your tax return for that year is due, including extensions. Irs free How to treat withdrawn contributions. Irs free   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. Irs free No deduction was allowed for the excess contribution. Irs free You withdraw the interest or other income earned on the excess contribution. Irs free You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Irs free If there was a loss, the net income you must withdraw may be a negative amount. Irs free How to treat withdrawn interest or other income. Irs free   You must include in your gross income the interest or other income that was earned on the excess contribution. Irs free Report it on your return for the year in which the excess contribution was made. Irs free Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus
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Tax Information for Benefits Practitioner

Employee Plans FY 2012 Annual Report and FY 2013 Workplan
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Page Last Reviewed or Updated: 28-Mar-2014

The Irs Free

Irs free Part Four -   Adjustments to Income The three chapters in this part discuss some of the adjustments to income that you can deduct in figuring your adjusted gross income. Irs free These chapters cover: Contributions you make to traditional individual retirement arrangements (IRAs) — chapter 17, Alimony you pay — chapter 18, and Student loan interest you pay — chapter 19. Irs free Other adjustments to income are discussed elsewhere. Irs free See Table V below. Irs free Table V. Irs free Other Adjustments to Income  Use this table to find information about other adjustments to income not covered in this part of the publication. Irs free IF you are looking for more information about the deduction for. Irs free . Irs free . Irs free THEN see. Irs free . Irs free . Irs free Certain business expenses of reservists, performing artists, and fee-basis officials Chapter 26. Irs free Contributions to a health savings account Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Irs free Moving expenses Publication 521, Moving Expenses. Irs free Part of your self-employment tax Chapter 22. Irs free Self-employed health insurance Chapter 21. Irs free Payments to self-employed SEP, SIMPLE, and qualified plans Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Irs free Penalty on the early withdrawal of savings Chapter 7. Irs free Contributions to an Archer MSA Publication 969. Irs free Reforestation amortization or expense Chapters 7 and 8 of Publication 535, Business Expenses. Irs free Contributions to Internal Revenue Code section 501(c)(18)(D) pension plans Publication 525, Taxable and Nontaxable Income. Irs free Expenses from the rental of personal property Chapter 12. Irs free Certain required repayments of supplemental unemployment benefits (sub-pay) Chapter 12. Irs free Foreign housing costs Chapter 4 of Publication 54, Tax Guide for U. Irs free S. Irs free Citizens and Resident Aliens Abroad. Irs free Jury duty pay given to your employer Chapter 12. Irs free Contributions by certain chaplains to Internal Revenue Code section 403(b) plans Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Irs free Attorney fees and certain costs for actions involving certain unlawful discrimination claims or awards to whistleblowers Publication 525. Irs free Domestic production activities deduction Form 8903, Domestic Production Activities Deduction. Irs free Table of Contents 17. Irs free   Individual Retirement Arrangements (IRAs)What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? 18. Irs free   AlimonyIntroductionSpouse or former spouse. Irs free Divorce or separation instrument. Irs free Useful Items - You may want to see: General RulesMortgage payments. Irs free Taxes and insurance. Irs free Other payments to a third party. Irs free Instruments Executed After 1984Payments to a third party. Irs free Exception. Irs free Substitute payments. Irs free Specifically designated as child support. Irs free Contingency relating to your child. Irs free Clearly associated with a contingency. Irs free How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule 19. Irs free   Education- Related AdjustmentsIntroduction Useful Items - You may want to see: Student Loan Interest DeductionStudent Loan Interest Defined Can You Claim the Deduction How Much Can You Deduct How Do You Figure the Deduction Tuition and Fees DeductionCan You Claim the Deduction What Expenses Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses How Much Can You Deduct Educator Expenses Prev  Up  Next   Home   More Online Publications