understanding ira contributions: from deadlines to deductibility rules
DESCRIPTION
Educational presentation from Ascensus covering both Traditional and Roth IRA issues, including contribution deadlines, contribution limits, possible tax credits, traditional IRA deductibility rules, and more. Free recorded webinar available at http://www.nafcu.org/ascensus.TRANSCRIPT
©2011 Ascensus, Inc.
IRA ContributionsIRA Contributions
February 2011 (030111-v29)
©2011 Ascensus, Inc.
Course ObjectivesCourse Objectives
• List eligibility rules for regular, spousal, and catch-up contributions to Traditional and Roth IRAs
• Explain the contribution limit for an individual• State the contribution deadline• Determine if an IRA contribution is deductible
1
©2011 Ascensus, Inc.
Course Objectives (continued)Course Objectives (continued)
• Understand when certain individuals may receive a tax credit for IRA contributions
• Accurately report regular, spousal, and catch-up contributions to Traditional and Roth IRAs
• Explain the IRA contribution deadline for certain military personnel
2
©2011 Ascensus, Inc.
Traditional IRA ContributionsTraditional IRA Contributions
3
Traditional IRA
Catch-Up
Transfer Recharacterization
SEP
Regular Spousal
Rollover
©2011 Ascensus, Inc.
Traditional IRA Contribution Eligibility Traditional IRA Contribution Eligibility
Regular Contribution• Under 70½ year• Has earned income
Spousal Contribution• Under 70½ year• Couple has earned
income• Married, filing joint
federal tax return
4
©2011 Ascensus, Inc.
Traditional IRA Contribution Eligibility (continued) Traditional IRA Contribution Eligibility (continued)
Catch-Up Contribution• Eligible for regular or spousal Traditional IRA
contribution• Has earned income (or couple has earned income if
joint filer) to support additional contribution• Attain age 50 before end of tax year
5
©2011 Ascensus, Inc.
Traditional IRA Contribution LimitsTraditional IRA Contribution Limits
6
YearMaximum individual
contribution (regular/spousal)Maximum catch-up
contribution
2010 $5,000* $1,000*
2011 $5,000* $1,000*
*Reduced by any Roth IRA contributions made for the same year
©2011 Ascensus, Inc.
Polling QuestionPolling Question
Do you use an IRA eligibility form?
7
©2011 Ascensus, Inc.
Traditional IRA Contribution Deductibility Traditional IRA Contribution Deductibility
8
No Yes
The deductibility of the contribution
depends on MAGI
The deductibility of the contribution
depends on MAGI
The contribution is deductible
The contribution is deductible
The deductibility of the contribution depends
on MAGI
The deductibility of the contribution depends
on MAGI
Is the IRA owner an active participant?
Is the IRA owner an active participant?
No Yes
Is the IRA owner married to an active
participant?
Is the IRA owner married to an active
participant?
©2011 Ascensus, Inc.
Traditional IRA Active Participant MAGI Limits Traditional IRA Active Participant MAGI Limits
9
Tax YearMarried filing a
joint returnMarried filing a
separate returnSingle filer
2010 $89,000 –
$109,000 $0 –
$10,000 $56,000 –
$66,000
2011 $90,000 –
$110,000 $0 –
$10,000 $56,000 –
$66,000
©2011 Ascensus, Inc.
Traditional IRA Nonactive Participant MAGI Limits Traditional IRA Nonactive Participant MAGI Limits
10
2010 2011
Active Participant: $89,000 –
$109,000 $90,000 –
$110,000
Nonactive
Participant: $167,000 –
$177,000 $169,000 –
$179,000
©2011 Ascensus, Inc.
Deductibility FormulaDeductibility Formula
11
( )maximum contribution including catch-up contributions
maximum deductibility threshold – MAGI
maximum deductibility threshold –minimum deductibility threshold
= deduction limitX
©2011 Ascensus, Inc.
Roth IRA ContributionsRoth IRA Contributions
12
Roth IRA
Catch-Up
Rollover Conversion
Recharacterization
Regular Spousal
Transfer
©2011 Ascensus, Inc.
Roth IRA Contribution EligibilityRoth IRA Contribution Eligibility
Regular Contribution• No age restriction• Has earned income• MAGI within limits
Spousal Contribution• No age restriction• Couple has earned
income• Married, filing joint
federal tax return• MAGI below or
within limits
13
©2011 Ascensus, Inc.
Roth IRA Contribution EligibilityRoth IRA Contribution Eligibility
Catch-Up Contribution• Eligible for regular or spousal Roth IRA contribution• Has earned income (or couple has earned income if
joint filer) to support additional contribution• Attain age 50 before end of tax year
14
©2011 Ascensus, Inc.
Roth IRA Contribution LimitsRoth IRA Contribution Limits
15
YearMaximum individual
contribution (regular/spousal)Maximum catch-up
contribution
2010 $5,000* $1,000*
2011 $5,000* $1,000*
*Reduced by any Traditional IRA contributions made for the same year
©2011 Ascensus, Inc.
Roth IRA Contribution Eligibility MAGI Limits Roth IRA Contribution Eligibility MAGI Limits
16
Tax YearMarried filing a
joint returnMarried filing a
separate returnSingle filer
2010 $167,000 –
$177,000 $0 –
$10,000 $105,000 –
$120,000
2011 $169,000 –
$179,000 $0 –
$10,000 $107,000 –
$122,000
©2011 Ascensus, Inc.
Tax CreditTax Credit
• Nonrefundable • Offsets cost of first $2,000 contributed to an IRA • Not to exceed $1,000 annually• PPA makes it permanent• Possible COLAs in future years
17
©2011 Ascensus, Inc.
Tax Credit EligibilityTax Credit Eligibility
• Attain age 18 by end of taxable year• Have AGI within limits • Not a dependent• Not a full-time student
18
©2011 Ascensus, Inc.
April 1520112010
Contribution DeadlineContribution Deadline
NOTE: April 15, 2011, is a legal holiday; therefore, IRA owners have until April 18, 2011, to make 2010 contributions. IRA owners who file with the Andover, MA, IRS Service Center have until April 19, 2011, to make 2010 contributions.
19
January 1
©2011 Ascensus, Inc.
Contribution ReportingContribution Reporting
• Contribution information reported to IRA owner and IRS on Form 5498
• Due by May 31• File with IRS on paper or electronically• Submit paper Forms 5498 to IRS with Form 1096• Make corrections as soon as possible
20
©2011 Ascensus, Inc.
Contribution Reporting – IRS Form 5498Contribution Reporting – IRS Form 5498
21
©2011 Ascensus, Inc.
Fair Market Value StatementFair Market Value Statement
• Use Dec. 31 value• Due to IRA owner or beneficiary by Jan. 31
22
©2011 Ascensus, Inc.
Annual Account StatementAnnual Account Statement
• Contribution information• Use own format or Form 5498• Due to IRA owner or beneficiary by May 31
23
©2011 Ascensus, Inc.
Polling QuestionPolling Question
Do you use Form 5498 to satisfy the annual account statement requirement?
24
©2011 Ascensus, Inc.
IRS
IRA Owner
Form 5498Form 1040Form 8606
Annual Account Statement and FMV Statement Financial
Organization
Contribution ReportingContribution Reporting
25
©2011 Ascensus, Inc.
Military Personnel IRA ContributionsMilitary Personnel IRA Contributions
• HERO Act allows individuals to use nontaxable combat pay to fund IRAs
• File separate From 5498 using special reporting requirements for military personnel in designated combat zones
26
©2011 Ascensus, Inc.
Military Personnel Postponed Contribution Deadline Military Personnel Postponed Contribution Deadline
• Armed forces personnel in combat zones, hazardous duty areas, and contingency operations
• Certain Red Cross personnel, correspondents, and civilians serving qualified areas
• Merchant Mariners (Iraqi Freedom)• Spouses and dependents of all of the above
27
©2011 Ascensus, Inc.
Military Personnel Postponed Contribution Deadline (continued) Military Personnel Postponed Contribution Deadline (continued)
Date left combat zone or hospitalization+ 180 days+ days left to contribute from date IRA owner
entered qualifying area____________________________________
= Deadline
28
©2011 Ascensus, Inc.
Entered combat zone
2010 2011 2012
12/15 4/15 9/2 7/1
122 days left to deposit 2010 contribution
302 days (180 + 122) to make
2010 contribution
Left combat zone
Military Personnel Postponed Contribution Deadline Example Military Personnel Postponed Contribution Deadline Example
2010 contribution deadline
29
©2011 Ascensus, Inc.
Combat Zone Contribution ReportingCombat Zone Contribution Reporting
Two Methods1. Use applicable prior-year Form 5498 for year
contribution is foror
2. Use current-year Form 5498 for prior-year contribution
– Contribution amount in Box 13a– Contribution tax year in Box 13b– Applicable military operation indicator code in Box 13c
30
©2011 Ascensus, Inc.
Method 2 Example – Current-Year Form 5498
Combat Zone Contribution ReportingCombat Zone Contribution Reporting
31
4,000 2008 IF
©2011 Ascensus, Inc.
Qualified Reservist RepaymentsQualified Reservist Repayments• Created by PPA• May recontribute distributions to an IRA within two
years following the end of the active duty period• Repayments are recontributed as after-tax dollars
32
©2011 Ascensus, Inc.
Qualified Reservist Repayment Reporting Qualified Reservist Repayment Reporting
• Enter contribution amount in Box 14a and enter indicator code “QR” in Box 14b of 2010 Form 5498
• IRA owner may need to amend tax return and file Form 8606
33
©2011 Ascensus, Inc.
HEART ActHEART Act
• Individuals may roll over military death gratuity and Servicemembers’ Group Life Insurance payments to Roth IRAs and Coverdell ESAs
• Report the rollover contribution amount in Box 2 of Form 5498 if death occurred after June 17, 2008, and amounts deposited within one year
• Employer-provided differential pay treated as wages for retirement plan purposes
• Allows employers to treat former employees killed or disabled on active duty as having returned to employment
34
©2011 Ascensus, Inc.
Contact...Contact...
Tammy Schultz, CISP, QKAAscensus
www.nafcu.org/ascensus
35
Ascensus® and the Ascensus logo are registered trademarks of Ascensus, Inc. All rights reserved.