The IRS has released some key end-of-year reminders for holders of IRAs. Advisors and others who deal with IRAs may find the information in Special Edition Tax Tip 2014-24 useful to share with clients and employees.
The IRS’ top four reminders are:
- Know the limits. Maximum contributions to a traditional or Roth IRA are $5,500 ($6,500 for those age 50 or older). When filing a joint return, a holder and his/her spouse can each contribute to an IRA even if only one has taxable compensation. In some cases, it may be necessary to reduce a deduction for traditional IRA contributions. This rule applies if a holder or his/her spouse has a retirement plan at work and their income is above a certain level. An IRA contribution for 2014 can be made until April 15, 2015.
- Avoid excess contributions. Contributing more than the IRA limits for 2014, will result in one being subject to a 6% tax on the excess amount. The tax applies each year that the excess amounts remain in your account. The tax can be avoided if a holder withdraws the excess amounts from the account by the due date of his or her 2014 tax return (including extensions).
- Take required distributions. Those who at least age 70½ must take a required minimum distribution from a traditional IRA, but are not required to take an RMD from a Roth IRA. RMDs generally must be taken by Dec. 31, 2014; the deadline is April 1, 2015, for those who turned 70½ in 2014. If one has more than one traditional IRA, the RMD is figured separately for each IRA. However, one can withdraw the total amount from one or more of them. A holder who doesn’t take an RMD on time faces a 50% excise tax on the RMD amount that was not taken out.
- Claim the Saver’s Credit. An IRA holder may qualify for the retirement savings contributions credit if he or she contributes to an IRA or retirement plan. The Saver’s Credit can increase a refund or reduce the tax owed. The maximum credit is $1,000, or $2,000 for married couples. The credit received often is much less, in part because of the deductions and other credits one may claim.
