According to the most recent Internal Revenue Service “Tax Time Guide,” clients can still contribute money to their 2016 Individual Retirement Account (IRA). The IRS-issued reminder also noted that such contributions may qualify for a deduction or credit.
This year, the IRS is releasing ten “Tax Time Guides” to equip taxpayers with resources needed to tackle tax season-specific issues. In addition to highlighting the traditional and Roth IRA contribution deadline for tax year 2016, the eighth guide outlines general information about IRAs:
Are contributions tax deductible?
Here’s what the IRS has to say: “Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable.” And while Roth IRA contributions are not deductible, taxpayers over the age of 59½ generally receive tax-free distributions.
If and when must distributions be received?
If a taxpayer with a traditional IRA turns 70½, then distributions must start by April 1 of the following year. Roth IRAs do not have this requirement.
How much can be contributed in a given tax year?
Generally, taxpayers below the age of 50 can contribute up to $5,500 to an IRA; those who were 50 or older by the end of 2016 may contribute $6,500.
Another difference: taxpayers with a traditional IRA who are 70½ years old by the end of 2016 are not allowed to make contributions.
Where to start?
myRA, initially introduced in President Obama’s 2014 State of the Union Address, is often advertised as a no-risk entry point to retirement plans. There’s no cost involved in opening an account, and myRA doesn’t require minimum contributions. After a myRA account turns 30 years old or once a myRA balance reaches $15,000, the money is transferred to a Roth IRA.
To enroll in myRA, applicants will need their Social Security number, federal- or state-issued identification (like a driver’s license), and the name and birth date or at least one beneficiary.
If you’d like to read more about contributing to a traditional or Roth IRA, check out Publication 590-A, and if you want to learn more about the myRA program, visit myRA.gov.