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Mypay dfas mil 17. Mypay dfas mil   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. Mypay dfas mil  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. Mypay dfas mil 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. Mypay dfas mil For more information, see How Much Can Be Contributed? later. Mypay dfas mil Roth IRA contribution limit. Mypay dfas mil  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. Mypay dfas mil 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. Mypay dfas mil However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Mypay dfas mil For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Mypay dfas mil Modified AGI limit for traditional IRA contributions increased. Mypay dfas mil  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. Mypay dfas mil 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. Mypay dfas mil If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Mypay dfas mil See How Much Can You Deduct , later. Mypay dfas mil Modified AGI limit for Roth IRA contributions increased. Mypay dfas mil  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Mypay dfas mil Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Mypay dfas mil You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Mypay dfas mil 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. Mypay dfas mil You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Mypay dfas mil 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-. Mypay dfas mil You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Mypay dfas mil See Can You Contribute to a Roth IRA , later. Mypay dfas mil Net Investment Income Tax. Mypay dfas mil   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). Mypay dfas mil However, these distributions are taken into account when determining the modified adjusted gross income threshold. Mypay dfas mil Distributions from a nonqualified retirement plan are included in net investment income. Mypay dfas mil See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Mypay dfas mil Name change. Mypay dfas mil  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Mypay dfas mil There are no changes to the rules regarding these IRAs. Mypay dfas mil See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Mypay dfas mil Reminders 2014 limits. Mypay dfas mil   You can find information about the 2014 contribution and AGI limits in Publication 590. Mypay dfas mil Contributions to both traditional and Roth IRAs. Mypay dfas mil   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. Mypay dfas mil Statement of required minimum distribution. Mypay dfas mil  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. Mypay dfas mil The report or offer must include the date by which the amount must be distributed. Mypay dfas mil The report is due January 31 of the year in which the minimum distribution is required. Mypay dfas mil It can be provided with the year-end fair market value statement that you normally get each year. Mypay dfas mil No report is required for IRAs of owners who have died. Mypay dfas mil IRA interest. Mypay dfas mil  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Mypay dfas mil Tax on your traditional IRA is generally deferred until you take a distribution. Mypay dfas mil Do not report this interest on your tax return as tax-exempt interest. Mypay dfas mil Form 8606. Mypay dfas mil   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Mypay dfas mil The term “50 or older” is used several times in this chapter. Mypay dfas mil It refers to an IRA owner who is age 50 or older by the end of the tax year. Mypay dfas mil Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Mypay dfas mil This chapter discusses the following topics. Mypay dfas mil The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Mypay dfas mil The Roth IRA, which features nondeductible contributions and tax-free distributions. Mypay dfas mil Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Mypay dfas mil For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Mypay dfas mil For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Mypay dfas mil 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. Mypay dfas mil ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil What is compensation?   Generally, compensation is what you earn from working. Mypay dfas mil Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Mypay dfas mil 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). Mypay dfas mil   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Mypay dfas mil   Compensation also includes commissions and taxable alimony and separate maintenance payments. Mypay dfas mil Self-employment income. Mypay dfas mil   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. Mypay dfas mil   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Mypay dfas mil Nontaxable combat pay. Mypay dfas mil   For IRA purposes, if you were a member of the U. Mypay dfas mil S. Mypay dfas mil Armed Forces, your compensation includes any nontaxable combat pay you receive. Mypay dfas mil What is not compensation?   Compensation does not include any of the following items. Mypay dfas mil Earnings and profits from property, such as rental income, interest income, and dividend income. Mypay dfas mil Pension or annuity income. Mypay dfas mil Deferred compensation received (compensation payments postponed from a past year). Mypay dfas mil Income from a partnership for which you do not provide services that are a material income-producing factor. Mypay dfas mil Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Mypay dfas mil Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Mypay dfas mil When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Mypay dfas mil However, the time for making contributions for any year is limited. Mypay dfas mil See When Can Contributions Be Made , later. Mypay dfas mil You can open different kinds of IRAs with a variety of organizations. Mypay dfas mil You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Mypay dfas mil You can also open an IRA through your stockbroker. Mypay dfas mil Any IRA must meet Internal Revenue Code requirements. Mypay dfas mil Kinds of traditional IRAs. Mypay dfas mil   Your traditional IRA can be an individual retirement account or annuity. Mypay dfas mil It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Mypay dfas mil How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Mypay dfas mil These limits and other rules are explained below. Mypay dfas mil Community property laws. Mypay dfas mil   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. Mypay dfas mil This is the rule even in states with community property laws. Mypay dfas mil Brokers' commissions. Mypay dfas mil   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Mypay dfas mil Trustees' fees. Mypay dfas mil   Trustees' administrative fees are not subject to the contribution limit. Mypay dfas mil Qualified reservist repayments. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Mypay dfas mil Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Mypay dfas mil (See Roth IRAs, later. Mypay dfas mil ) General limit. Mypay dfas mil   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Mypay dfas mil $5,500 ($6,500 if you are 50 or older). Mypay dfas mil Your taxable compensation (defined earlier) for the year. Mypay dfas mil 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. Mypay dfas mil (See Nondeductible Contributions , later. Mypay dfas mil ) Qualified reservist repayments do not affect this limit. Mypay dfas mil Example 1. Mypay dfas mil Betty, who is 34 years old and single, earned $24,000 in 2013. Mypay dfas mil Her IRA contributions for 2013 are limited to $5,500. Mypay dfas mil Example 2. Mypay dfas mil John, an unmarried college student working part time, earned $3,500 in 2013. Mypay dfas mil His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Mypay dfas mil Kay Bailey Hutchison Spousal IRA limit. Mypay dfas mil   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. Mypay dfas mil $5,500 ($6,500 if you are 50 or older). Mypay dfas mil The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Mypay dfas mil Your spouse's IRA contribution for the year to a traditional IRA. Mypay dfas mil Any contribution for the year to a Roth IRA on behalf of your spouse. Mypay dfas mil 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). Mypay dfas mil 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). Mypay dfas mil Contributions must be in the form of money (cash, check, or money order). Mypay dfas mil Property cannot be contributed. Mypay dfas mil Contributions must be made by due date. Mypay dfas mil   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. Mypay dfas mil Age 70½ rule. Mypay dfas mil   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Mypay dfas mil   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Mypay dfas mil If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Mypay dfas mil Designating year for which contribution is made. Mypay dfas mil   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. Mypay dfas mil 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). Mypay dfas mil Filing before a contribution is made. Mypay dfas mil   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Mypay dfas mil Generally, the contribution must be made by the due date of your return, not including extensions. Mypay dfas mil Contributions not required. Mypay dfas mil   You do not have to contribute to your traditional IRA for every tax year, even if you can. Mypay dfas mil 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). Mypay dfas mil However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Mypay dfas mil See Limit If Covered by Employer Plan , later. Mypay dfas mil You may be able to claim a credit for contributions to your traditional IRA. Mypay dfas mil For more information, see chapter 37. Mypay dfas mil Trustees' fees. Mypay dfas mil   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Mypay dfas mil However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Mypay dfas mil See chapter 28. Mypay dfas mil Brokers' commissions. Mypay dfas mil   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Mypay dfas mil Full deduction. Mypay dfas mil   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). Mypay dfas mil 100% of your compensation. Mypay dfas mil This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Mypay dfas mil Kay Bailey Hutchison Spousal IRA. Mypay dfas mil   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. Mypay dfas mil $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Mypay dfas mil The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Mypay dfas mil The IRA deduction for the year of the spouse with the greater compensation. Mypay dfas mil Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Mypay dfas mil Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Mypay dfas mil This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Mypay dfas mil Note. Mypay dfas mil 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. Mypay dfas mil After a divorce or legal separation, you can deduct only contributions to your own IRA. Mypay dfas mil Your deductions are subject to the rules for single individuals. Mypay dfas mil Covered by an employer retirement plan. Mypay dfas mil   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. Mypay dfas mil This is discussed later under Limit If Covered by Employer Plan . Mypay dfas mil Limits on the amount you can deduct do not affect the amount that can be contributed. Mypay dfas mil See Nondeductible Contributions , later. Mypay dfas mil 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. Mypay dfas mil The “Retirement plan” box should be checked if you were covered. Mypay dfas mil Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Mypay dfas mil If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Mypay dfas mil Federal judges. Mypay dfas mil   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Mypay dfas mil 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. Mypay dfas mil These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Mypay dfas mil Tax year. Mypay dfas mil   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Mypay dfas mil For almost all people, the tax year is the calendar year. Mypay dfas mil Defined contribution plan. Mypay dfas mil   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. Mypay dfas mil   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Mypay dfas mil Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Mypay dfas mil Defined benefit plan. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil   A defined benefit plan is any plan that is not a defined contribution plan. Mypay dfas mil Defined benefit plans include pension plans and annuity plans. Mypay dfas mil No vested interest. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil Social security or railroad retirement. Mypay dfas mil   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Mypay dfas mil Benefits from a previous employer's plan. Mypay dfas mil   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Mypay dfas mil Reservists. Mypay dfas mil   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. Mypay dfas mil You are not covered by the plan if both of the following conditions are met. Mypay dfas mil 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. Mypay dfas mil You did not serve more than 90 days on active duty during the year (not counting duty for training). Mypay dfas mil Volunteer firefighters. Mypay dfas mil   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Mypay dfas mil You are not covered by the plan if both of the following conditions are met. Mypay dfas mil 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. Mypay dfas mil Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil These amounts vary depending on your filing status. Mypay dfas mil To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Mypay dfas mil See Filing status and Modified adjusted gross income (AGI) , later. Mypay dfas mil Then use Table 17-1 or 17-2 to determine if the phaseout applies. Mypay dfas mil Social security recipients. Mypay dfas mil   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. Mypay dfas mil You received social security benefits. Mypay dfas mil You received taxable compensation. Mypay dfas mil Contributions were made to your traditional IRA. Mypay dfas mil You or your spouse was covered by an employer retirement plan. Mypay dfas mil Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Mypay dfas mil Deduction phaseout. Mypay dfas mil   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. Mypay dfas mil Table 17-1. Mypay dfas mil 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. Mypay dfas mil IF your filing status is. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil   AND your modified AGI is. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil   THEN you can take. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil single   or  head of household   $59,000 or less   a full deduction. Mypay dfas mil   more than $59,000 but less than $69,000   a partial deduction. Mypay dfas mil   $69,000 or more   no deduction. Mypay dfas mil married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Mypay dfas mil   more than $95,000 but less than $115,000   a partial deduction. Mypay dfas mil   $115,000 or more   no deduction. Mypay dfas mil married filing separately2   less than $10,000   a partial deduction. Mypay dfas mil   $10,000 or more   no deduction. Mypay dfas mil 1Modified AGI (adjusted gross income). Mypay dfas mil See Modified adjusted gross income (AGI) . Mypay dfas mil 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). Mypay dfas mil If your spouse is covered. Mypay dfas mil   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. Mypay dfas mil Filing status. Mypay dfas mil   Your filing status depends primarily on your marital status. Mypay dfas mil 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. Mypay dfas mil If you need more information on filing status, see chapter 2. Mypay dfas mil Lived apart from spouse. Mypay dfas mil   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. Mypay dfas mil Table 17-2. Mypay dfas mil 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. Mypay dfas mil IF your filing status is. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil   AND your modified AGI is. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil   THEN you can take. Mypay dfas mil . Mypay dfas mil . Mypay dfas mil single, head of household, or qualifying widow(er)   any amount   a full deduction. Mypay dfas mil married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Mypay dfas mil married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Mypay dfas mil   more than $178,000 but less than $188,000   a partial deduction. Mypay dfas mil   $188,000 or more   no deduction. Mypay dfas mil married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Mypay dfas mil   $10,000 or more   no deduction. Mypay dfas mil 1Modified AGI (adjusted gross income). Mypay dfas mil See Modified adjusted gross income (AGI) . Mypay dfas mil 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Mypay dfas mil Modified adjusted gross income (AGI). Mypay dfas mil   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Mypay dfas mil If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Mypay dfas mil You may be able to use Worksheet 17-1 to figure your modified AGI. Mypay dfas mil    Do not assume that your modified AGI is the same as your compensation. Mypay dfas mil Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Mypay dfas mil Form 1040. Mypay dfas mil   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. Mypay dfas mil IRA deduction. Mypay dfas mil Student loan interest deduction. Mypay dfas mil Tuition and fees deduction. Mypay dfas mil Domestic production activities deduction. Mypay dfas mil Foreign earned income exclusion. Mypay dfas mil Foreign housing exclusion or deduction. Mypay dfas mil Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Mypay dfas mil S. Mypay dfas mil Savings Bonds Issued After 1989. Mypay dfas mil Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Mypay dfas mil This is your modified AGI. Mypay dfas mil Form 1040A. Mypay dfas mil   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. Mypay dfas mil IRA deduction. Mypay dfas mil Student loan interest deduction. Mypay dfas mil Tuition and fees deduction. Mypay dfas mil Exclusion of qualified savings bond interest shown on Form 8815. Mypay dfas mil This is your modified AGI. Mypay dfas mil Both contributions for 2013 and distributions in 2013. Mypay dfas mil   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Mypay dfas mil You received distributions in 2013 from one or more traditional IRAs. Mypay dfas mil You made contributions to a traditional IRA for 2013. Mypay dfas mil Some of those contributions may be nondeductible contributions. Mypay dfas mil If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Mypay dfas mil To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Mypay dfas mil   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Mypay dfas mil    How to figure your reduced IRA deduction. Mypay dfas mil   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Mypay dfas mil Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Mypay dfas mil Worksheet 17-1. Mypay dfas mil Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Mypay dfas mil 1. Mypay dfas mil 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. Mypay dfas mil   2. Mypay dfas mil Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Mypay dfas mil   3. Mypay dfas mil Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Mypay dfas mil   4. Mypay dfas mil Enter any domestic production activities deduction from Form 1040, line 35 4. Mypay dfas mil   5. Mypay dfas mil Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Mypay dfas mil   6. Mypay dfas mil Enter any foreign housing deduction from Form 2555, line 50 6. Mypay dfas mil   7. Mypay dfas mil Enter any excludable savings bond interest from Form 8815, line 14 7. Mypay dfas mil   8. Mypay dfas mil Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Mypay dfas mil   9. Mypay dfas mil Add lines 1 through 8. Mypay dfas mil This is your Modified AGI for traditional IRA purposes 9. Mypay dfas mil   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Mypay dfas mil If you file Form 1040A, enter your IRA deduction on line 17. Mypay dfas mil You cannot deduct IRA contributions on Form 1040EZ. Mypay dfas mil 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. Mypay dfas mil The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Mypay dfas mil Example. Mypay dfas mil Mike is 28 years old and single. Mypay dfas mil In 2013, he was covered by a retirement plan at work. Mypay dfas mil His salary was $57,312. Mypay dfas mil His modified AGI was $70,000. Mypay dfas mil Mike made a $5,500 IRA contribution for 2013. Mypay dfas mil Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Mypay dfas mil He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Mypay dfas mil Form 8606. Mypay dfas mil   To designate contributions as nondeductible, you must file Form 8606. Mypay dfas mil   You do not have to designate a contribution as nondeductible until you file your tax return. Mypay dfas mil When you file, you can even designate otherwise deductible contributions as nondeductible. Mypay dfas mil   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Mypay dfas mil 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. Mypay dfas mil In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Mypay dfas mil See Form 8606 under Distributions Fully or Partly Taxable, later. Mypay dfas mil Failure to report nondeductible contributions. Mypay dfas mil   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Mypay dfas mil All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Mypay dfas mil Penalty for overstatement. Mypay dfas mil   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. Mypay dfas mil Penalty for failure to file Form 8606. Mypay dfas mil   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. Mypay dfas mil    Tax on earnings on nondeductible contributions. Mypay dfas mil   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. Mypay dfas mil See When Can You Withdraw or Use IRA Assets , later. Mypay dfas mil Cost basis. Mypay dfas mil   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Mypay dfas mil Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Mypay dfas mil Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Mypay dfas mil A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Mypay dfas mil Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Mypay dfas mil Inherited from spouse. Mypay dfas mil   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Mypay dfas mil You can: Treat it as your own IRA by designating yourself as the account owner. Mypay dfas mil 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). Mypay dfas mil Treat yourself as the beneficiary rather than treating the IRA as your own. Mypay dfas mil Treating it as your own. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil   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. Mypay dfas mil Inherited from someone other than spouse. Mypay dfas mil   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Mypay dfas mil This means that you cannot make any contributions to the IRA. Mypay dfas mil It also means you cannot roll over any amounts into or out of the inherited IRA. Mypay dfas mil 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. Mypay dfas mil For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Mypay dfas mil 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. Mypay dfas mil You can make the following kinds of transfers. Mypay dfas mil Transfers from one trustee to another. Mypay dfas mil Rollovers. Mypay dfas mil Transfers incident to a divorce. Mypay dfas mil Transfers to Roth IRAs. Mypay dfas mil   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Mypay dfas mil You can also move assets from a qualified retirement plan to a Roth IRA. Mypay dfas mil See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Mypay dfas mil 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. Mypay dfas mil Because there is no distribution to you, the transfer is tax free. Mypay dfas mil 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 . Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil The contribution to the second retirement plan is called a “rollover contribution. Mypay dfas mil ” Note. Mypay dfas mil 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. Mypay dfas mil Kinds of rollovers to a traditional IRA. Mypay dfas mil   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). Mypay dfas mil Treatment of rollovers. Mypay dfas mil   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 . Mypay dfas mil Kinds of rollovers from a traditional IRA. Mypay dfas mil   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Mypay dfas mil 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). Mypay dfas mil The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Mypay dfas mil Qualified plans may, but are not required to, accept such rollovers. Mypay dfas mil Time limit for making a rollover contribution. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Mypay dfas mil Extension of rollover period. Mypay dfas mil   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. Mypay dfas mil For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Mypay dfas mil More information. Mypay dfas mil   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Mypay dfas mil 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. Mypay dfas mil Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Mypay dfas mil Waiting period between rollovers. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Mypay dfas mil Example. Mypay dfas mil You have two traditional IRAs, IRA-1 and IRA-2. Mypay dfas mil You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil Exception. Mypay dfas mil   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. Mypay dfas mil Partial rollovers. Mypay dfas mil   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Mypay dfas mil The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Mypay dfas mil 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? . Mypay dfas mil Required distributions. Mypay dfas mil   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Mypay dfas mil Inherited IRAs. Mypay dfas mil   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. Mypay dfas mil See Treating it as your own , earlier. Mypay dfas mil Not inherited from spouse. Mypay dfas mil   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. Mypay dfas mil You must withdraw the IRA assets within a certain period. Mypay dfas mil For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Mypay dfas mil Reporting rollovers from IRAs. Mypay dfas mil   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. Mypay dfas mil   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Mypay dfas mil 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. Mypay dfas mil 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. Mypay dfas mil Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Mypay dfas mil See your tax return instructions. Mypay dfas mil   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. Mypay dfas mil 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). Mypay dfas mil A qualified plan is one that meets the requirements of the Internal Revenue Code. Mypay dfas mil Eligible rollover distribution. Mypay dfas mil   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. Mypay dfas mil A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Mypay dfas mil A hardship distribution. Mypay dfas mil 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. Mypay dfas mil Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Mypay dfas mil 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. Mypay dfas mil Dividends on employer securities. Mypay dfas mil The cost of life insurance coverage. Mypay dfas mil Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Mypay dfas mil To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Mypay dfas mil See Form 8606 under Distributions Fully or Partly Taxable, later. Mypay dfas mil Rollover by nonspouse beneficiary. Mypay dfas mil   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. Mypay dfas mil The IRA is treated as an inherited IRA. Mypay dfas mil For more information about inherited IRAs, see Inherited IRAs , earlier. Mypay dfas mil Reporting rollovers from employer plans. Mypay dfas mil    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Mypay dfas mil This amount should be shown in box 1 of Form 1099-R. Mypay dfas mil From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Mypay dfas mil From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Mypay dfas mil Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Mypay dfas mil Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Mypay dfas mil 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. Mypay dfas mil The transfer is tax free. Mypay dfas mil For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Mypay dfas mil Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Mypay dfas mil   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Mypay dfas mil The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Mypay dfas mil If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Mypay dfas mil However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Mypay dfas mil Required distributions. Mypay dfas mil   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). Mypay dfas mil Income. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil   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. Mypay dfas mil   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. Mypay dfas mil   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Mypay dfas mil See chapter 4. Mypay dfas mil 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. Mypay dfas mil This is called recharacterizing the contribution. Mypay dfas mil See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Mypay dfas mil How to recharacterize a contribution. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil If you recharacterize your contribution, you must do all three of the following. Mypay dfas mil Include in the transfer any net income allocable to the contribution. Mypay dfas mil If there was a loss, the net income you must transfer may be a negative amount. Mypay dfas mil Report the recharacterization on your tax return for the year during which the contribution was made. Mypay dfas mil Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Mypay dfas mil No deduction allowed. Mypay dfas mil   You cannot deduct the contribution to the first IRA. Mypay dfas mil Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Mypay dfas mil Required notifications. Mypay dfas mil   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. Mypay dfas mil You must make the notifications by the date of the transfer. Mypay dfas mil Only one notification is required if both IRAs are maintained by the same trustee. Mypay dfas mil The notification(s) must include all of the following information. Mypay dfas mil The type and amount of the contribution to the first IRA that is to be recharacterized. Mypay dfas mil The date on which the contribution was made to the first IRA and the year for which it was made. Mypay dfas mil 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. Mypay dfas mil The name of the trustee of the first IRA and the name of the trustee of the second IRA. Mypay dfas mil Any additional information needed to make the transfer. Mypay dfas mil Reporting a recharacterization. Mypay dfas mil   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. Mypay dfas mil You must treat the contribution as having been made to the second IRA. Mypay dfas mil When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Mypay dfas mil Violation of the rules generally results in additional taxes in the year of violation. Mypay dfas mil See What Acts Result in Penalties or Additional Taxes , later. Mypay dfas mil Contributions returned before the due date of return. Mypay dfas mil   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Mypay dfas mil If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Mypay dfas mil You can do this if, for each contribution you withdraw, both of the following conditions apply. Mypay dfas mil You did not take a deduction for the contribution. Mypay dfas mil You withdraw any interest or other income earned on the contribution. Mypay dfas mil You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Mypay dfas mil If there was a loss, the net income earned on the contribution may be a negative amount. Mypay dfas mil Note. Mypay dfas mil 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. Mypay dfas mil Earnings includible in income. Mypay dfas mil   You must include in income any earnings on the contributions you withdraw. Mypay dfas mil Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Mypay dfas mil 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. Mypay dfas mil Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Mypay dfas mil    Early distributions tax. Mypay dfas mil   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Mypay dfas mil 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. Mypay dfas mil When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Mypay dfas mil Eventually they must be distributed. Mypay dfas mil 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. Mypay dfas mil See Excess Accumulations (Insufficient Distributions) , later. Mypay dfas mil The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Mypay dfas mil Required minimum distribution. Mypay dfas mil   The amount that must be distributed each year is referred to as the required minimum distribution. Mypay dfas mil Required distributions not eligible for rollover. Mypay dfas mil   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Mypay dfas mil IRA owners. Mypay dfas mil   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. Mypay dfas mil April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Mypay dfas mil Distributions by the required beginning date. Mypay dfas mil   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Mypay dfas mil 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. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil Distributions after the required beginning date. Mypay dfas mil   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Mypay dfas mil    Beneficiaries. Mypay dfas mil   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. Mypay dfas mil More information. Mypay dfas mil   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. Mypay dfas mil Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Mypay dfas mil Exceptions. Mypay dfas mil   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 . Mypay dfas mil    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. Mypay dfas mil 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. Mypay dfas mil Qualified charitable distributions (QCD). Mypay dfas mil   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Mypay dfas mil Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Mypay dfas mil See Qualified Charitable Distributions in Publication 590 for more information. Mypay dfas mil Ordinary income. Mypay dfas mil   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Mypay dfas mil No special treatment. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil Fully taxable. Mypay dfas mil   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. Mypay dfas mil Because you have no basis in your IRA, any distributions are fully taxable when received. Mypay dfas mil See Reporting taxable distributions on your return , later. Mypay dfas mil Partly taxable. Mypay dfas mil    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. Mypay dfas mil These nondeductible contributions are not taxed when they are distributed to you. Mypay dfas mil They are a return of your investment in your IRA. Mypay dfas mil   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Mypay dfas mil 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). Mypay dfas mil Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Mypay dfas mil Form 8606. Mypay dfas mil   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. Mypay dfas mil Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Mypay dfas mil Note. Mypay dfas mil 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. Mypay dfas mil Send it to the IRS at the time and place you would otherwise file an income tax return. Mypay dfas mil Distributions reported on Form 1099-R. Mypay dfas mil   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. Mypay dfas mil , or a similar statement. Mypay dfas mil IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Mypay dfas mil A number or letter code in box 7 tells you what type of distribution you received from your IRA. Mypay dfas mil Withholding. Mypay dfas mil   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Mypay dfas mil See chapter 4. Mypay dfas mil IRA distributions delivered outside the United States. Mypay dfas mil   In general, if you are a U. Mypay dfas mil S. Mypay dfas mil 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. Mypay dfas mil Reporting taxable distributions on your return. Mypay dfas mil    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). Mypay dfas mil 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. Mypay dfas mil You cannot report distributions on Form 1040EZ. Mypay dfas mil 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. Mypay dfas mil There are additions to the regular tax for using your IRA funds in prohibited transactions. Mypay dfas mil There are also additional taxes for the following activities. Mypay dfas mil Investing in collectibles. Mypay dfas mil Making excess contributions. Mypay dfas mil Taking early distributions. Mypay dfas mil Allowing excess amounts to accumulate (failing to take required distributions). Mypay dfas mil There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Mypay dfas mil Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Mypay dfas mil Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Mypay dfas mil The following are examples of prohibited transactions with a traditional IRA. Mypay dfas mil Borrowing money from it. Mypay dfas mil Selling property to it. Mypay dfas mil Receiving unreasonable compensation for managing it. Mypay dfas mil Using it as security for a loan. Mypay dfas mil Buying property for personal use (present or future) with IRA funds. Mypay dfas mil Effect on an IRA account. Mypay dfas mil   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. Mypay dfas mil Effect on you or your beneficiary. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Mypay dfas mil The distribution may be subject to additional taxes or penalties. Mypay dfas mil Taxes on prohibited transactions. Mypay dfas mil   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. Mypay dfas mil 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. Mypay dfas mil More information. Mypay dfas mil   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Mypay dfas mil Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Mypay dfas mil You may have to pay the 10% additional tax on early distributions, discussed later. Mypay dfas mil Collectibles. Mypay dfas mil   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Mypay dfas mil Exception. Mypay dfas mil    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Mypay dfas mil S. Mypay dfas mil gold coins, or one-ounce silver coins minted by the Treasury Department. Mypay dfas mil It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Mypay dfas mil 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. Mypay dfas mil For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Mypay dfas mil Tax on excess contributions. Mypay dfas mil   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. Mypay dfas mil You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Mypay dfas mil The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Mypay dfas mil Excess contributions withdrawn by due date of return. Mypay dfas mil   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. Mypay dfas mil You must complete your withdrawal by the date your tax return for that year is due, including extensions. Mypay dfas mil How to treat withdrawn contributions. Mypay dfas mil   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. Mypay dfas mil No deduction was allowed for the excess contribution. Mypay dfas mil You withdraw the interest or other income earned on the excess contribution. Mypay dfas mil You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Mypay dfas mil If there was a loss, the net income you must withdraw may be a negative amount. Mypay dfas mil How to treat withdrawn interest or other income. Mypay dfas mil   You must include in your gross income the interest or other income that was earned on the excess contribution. Mypay dfas mil Report it on your return for the year in which the excess contribution was made. Mypay dfas mil Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus
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Understanding your CP12R Notice

We made changes to the computation of the Rebate Recovery Credit on your return.

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Tax publications you may find useful

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You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice, and compare our changes to the information on your tax return.
  • If you agree with the changes we made, do nothing; you should receive a refund check in 4-6 weeks, as long as you don't owe other tax or debts we're required to collect.
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Answers to Common Questions

Why did I receive this notice?
We issue Notice CP12R when we correct one or more mistakes on your tax return, and

  • The overpayment is different from the one you expected, or
  • You have an overpayment when you thought you owed money or had an even balance, or
  • We computed your Recovery Rebate Credit for you on your tax return.

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What should I do if I disagree with the changes you made?
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What is the Rebate Recovery Credit?
The Recovery Rebate Credit is a special one-time benefit that most people received in 2008 in the form of an Economic Stimulus Payment. Learn more about the Recovery Rebate Credit.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 19-Feb-2014

The Mypay Dfas Mil

Mypay dfas mil 1. Mypay dfas mil   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Mypay dfas mil  You can set up and make contributions to an IRA if you receive taxable compensation. Mypay dfas mil Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Mypay dfas mil For more information about IRAs, see Publication 590. Mypay dfas mil Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Mypay dfas mil The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Mypay dfas mil Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Mypay dfas mil Many types of educational assistance are tax free if they meet the requirements discussed here. Mypay dfas mil Special rules apply to U. Mypay dfas mil S. Mypay dfas mil citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Mypay dfas mil For information about these rules, see Publication 54, Tax Guide for U. Mypay dfas mil S. Mypay dfas mil Citizens and Resident Aliens Abroad. Mypay dfas mil Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Mypay dfas mil A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Mypay dfas mil Amount of scholarship or fellowship. Mypay dfas mil   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Mypay dfas mil This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Mypay dfas mil The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Mypay dfas mil Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Mypay dfas mil Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Mypay dfas mil A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Mypay dfas mil (But for exceptions, see Payment for services,later. Mypay dfas mil Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Mypay dfas mil Candidate for a degree. Mypay dfas mil   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Mypay dfas mil Eligible educational institution. Mypay dfas mil   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Mypay dfas mil Qualified education expenses. Mypay dfas mil   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Mypay dfas mil These items must be required of all students in your course of instruction. Mypay dfas mil Expenses that do not qualify. Mypay dfas mil   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Mypay dfas mil Payment for services. Mypay dfas mil   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Mypay dfas mil This applies even if all candidates for a degree must perform the services to receive the degree. Mypay dfas mil (See exceptions next. Mypay dfas mil ) Exceptions. Mypay dfas mil   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Mypay dfas mil Example 1. Mypay dfas mil You received a scholarship of $2,500. Mypay dfas mil The scholarship was not received under either of the exceptions mentioned above. Mypay dfas mil As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Mypay dfas mil Of the $2,500 scholarship, $1,000 represents payment for teaching. Mypay dfas mil The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Mypay dfas mil Your qualified education expenses were at least $1,500. Mypay dfas mil Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Mypay dfas mil The $1,000 you received for teaching is taxable. Mypay dfas mil Example 2. Mypay dfas mil You are a candidate for a degree at a medical school. Mypay dfas mil You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Mypay dfas mil The terms of your scholarship require you to perform future services. Mypay dfas mil A substantial penalty applies if you do not comply. Mypay dfas mil The entire amount of your grant is taxable as payment for services in the year it is received. Mypay dfas mil Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Mypay dfas mil Worksheet 1-1. Mypay dfas mil    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Mypay dfas mil    Worksheet 1-1. Mypay dfas mil Taxable Scholarship and Fellowship Income 1. Mypay dfas mil Enter the total amount of any scholarship or fellowship for 2013. Mypay dfas mil See Amount of scholarship or fellowship, earlier. Mypay dfas mil 1. Mypay dfas mil       If you are a degree candidate at an eligible educational institution, go to line 2. Mypay dfas mil If you are not a degree candidate at an eligible educational institution, stop here. Mypay dfas mil The entire amount is taxable. Mypay dfas mil For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Mypay dfas mil       2. Mypay dfas mil Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Mypay dfas mil (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Mypay dfas mil ) 2. Mypay dfas mil     3. Mypay dfas mil Subtract line 2 from line 1 3. Mypay dfas mil     4. Mypay dfas mil Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Mypay dfas mil     5. Mypay dfas mil Subtract line 4 from line 3 5. Mypay dfas mil     6. Mypay dfas mil Enter the amount of your qualified education expenses 6. Mypay dfas mil     7. Mypay dfas mil Enter the smaller of line 5 or line 6. Mypay dfas mil This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Mypay dfas mil     8. Mypay dfas mil Subtract line 7 from line 5 8. Mypay dfas mil     9. Mypay dfas mil Taxable part. Mypay dfas mil Add lines 2, 4, and 8. Mypay dfas mil See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Mypay dfas mil     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Mypay dfas mil You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Mypay dfas mil Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Mypay dfas mil If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Mypay dfas mil If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Mypay dfas mil You must report the taxable amount whether or not you received a Form W-2. Mypay dfas mil If you receive an incorrect Form W-2, ask the payer for a corrected one. Mypay dfas mil For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Mypay dfas mil How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Mypay dfas mil Form 1040EZ. Mypay dfas mil   If you file Form 1040EZ, include the taxable amount in the total on line 1. Mypay dfas mil If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Mypay dfas mil Form 1040A. Mypay dfas mil   If you file Form 1040A, include the taxable amount in the total on line 7. Mypay dfas mil If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Mypay dfas mil Form 1040. Mypay dfas mil   If you file Form 1040, include the taxable amount in the total on line 7. Mypay dfas mil If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Mypay dfas mil Schedule SE (Form 1040). Mypay dfas mil   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Mypay dfas mil If your net earnings are $400 or more, you must pay self-employment tax. Mypay dfas mil Use Schedule SE, Self-Employment Tax, to figure this tax. Mypay dfas mil Form 1040NR. Mypay dfas mil   If you file Form 1040NR, report the taxable amount on line 12. Mypay dfas mil Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Mypay dfas mil S. Mypay dfas mil Source Income Subject to Withholding. Mypay dfas mil See the Instructions for Form 1040NR for more information. Mypay dfas mil Form 1040NR-EZ. Mypay dfas mil   If you file Form 1040NR-EZ, report the taxable amount on line 5. Mypay dfas mil Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Mypay dfas mil See the Instructions for Form 1040NR-EZ for more information. Mypay dfas mil Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Mypay dfas mil Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Mypay dfas mil Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Mypay dfas mil They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Mypay dfas mil Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Mypay dfas mil Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Mypay dfas mil Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Mypay dfas mil Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Mypay dfas mil Do not include these payments as income on your federal tax return. Mypay dfas mil If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Mypay dfas mil This applies only to the part of your VA payments that is required to be used for education expenses. Mypay dfas mil You may want to visit the Veteran's Administration website at www. Mypay dfas mil gibill. Mypay dfas mil va. Mypay dfas mil gov for specific information about the various VA benefits for education. Mypay dfas mil Example. Mypay dfas mil You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Mypay dfas mil Neither of these benefits is taxable and you do not report them on your tax return. Mypay dfas mil You also want to claim an American opportunity credit on your return. Mypay dfas mil You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Mypay dfas mil To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Mypay dfas mil You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Mypay dfas mil Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Mypay dfas mil This is called a “tuition reduction. Mypay dfas mil ” You do not have to include a qualified tuition reduction in your income. Mypay dfas mil A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Mypay dfas mil You do not have to use the tuition reduction at the eligible educational institution from which you received it. Mypay dfas mil In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Mypay dfas mil The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Mypay dfas mil You must include in your income any tuition reduction you receive that is payment for your services. Mypay dfas mil Eligible educational institution. Mypay dfas mil   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Mypay dfas mil Officers, owners, and highly compensated employees. Mypay dfas mil   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Mypay dfas mil This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Mypay dfas mil The group must be defined under a reasonable classification set up by the employer. Mypay dfas mil The classification must not discriminate in favor of owners, officers, or highly compensated employees. Mypay dfas mil Payment for services. Mypay dfas mil   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Mypay dfas mil This applies even if all candidates for a degree must perform the services to receive the degree. Mypay dfas mil (See below for exceptions. Mypay dfas mil ) Exceptions. Mypay dfas mil   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Mypay dfas mil Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Mypay dfas mil You are an employee of the eligible educational institution. Mypay dfas mil You were an employee of the eligible educational institution, but you retired or left on disability. Mypay dfas mil You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Mypay dfas mil You are the dependent child or spouse of an individual described in (1) through (3), above. Mypay dfas mil Child of deceased parents. Mypay dfas mil   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Mypay dfas mil Child of divorced parents. Mypay dfas mil   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Mypay dfas mil Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Mypay dfas mil It is provided by an eligible educational institution. Mypay dfas mil You are a graduate student who performs teaching or research activities for the educational institution. Mypay dfas mil You must include in income any other tuition reductions for graduate education that you receive. Mypay dfas mil How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Mypay dfas mil Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Mypay dfas mil Prev  Up  Next   Home   More Online Publications