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31 Dec / Can I make a Traditional IRA Contribution

Schultz & Associates, CPA, Plymouth, Michigan

Making a Traditional IRA contribution is the best way to reduce your income tax liability.  All other deductions result in a decrease in tax. But most deductions result in a net out flow of cash.  Traditional IRA contributions are not available for withdrawal without penalty prior to age 59 1/2. But it is still your money.

The employed and self-employed who are not active participants in an employer-sponsored retirement plan can make an annual deductible traditional IRA contribution. Those who are participants in a plan may still be able to make the contribution but it is likely not to be deductible. Employer-sponsored retirement plans include, 401(k), 403(b), SEP, and profit sharing plans. There are other types of plans as well that would be considered employer-sponsored.

The maximum contribution that a individual can make to their Traditional IRA accounting for 2013 and 2014 is $5,500.  Individuals who turn 50 prior to the end of the tax year are eligible for a additional $1,000 catch-up contribution. Contributions must be made by April 15th in order to be deductible.

Income generated from Traditional IRA contributions are not taxable when earned. Funds drawn out of a IRA account are subject to ordinary income taxes.  Withdrawals taken prior to reached 59 1/2 are subject to tax plus a additional 10% penalty for early withdrawal. Traditional IRA contributions are great ways to save for retirement.

 

 

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Tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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By Jschultz in Business, Tax
Making a Traditional IRA contribution is the best way to reduce your income tax liability.  All other deductions result in a decrease in tax. But most deductions result in a net out flow of cash.  Traditional IRA contributions are not available for withdrawal without penalty...
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