If you are looking for a way to reduce your 2013 tax bill, you may want to consider making an IRA contribution. It’s not too late, IRAs may be funded until April 15, 2014 for a deduction on your 2013 tax return.
In order to make an IRA contribution you must receive earned income. The income can be wages, salaries, or income from self-employment. The good news for married taxpayers is the earned income for one spouse can be counted as earned income for the non-working spouse. For example, Joe is earns $50,000 per year from ABC Corporation and his wife, Sue, is not employed. Assuming Joe is not an active participant in ABC Corporation’s retirement plan, Joe and Sue are eligible to contribute $5,500 to their IRAs. IRA contributions in 2013 and 2014 are limited to the greater of earned income or $5,500 per year or $6,500 per year if you are over 50.
If you are an active participant in your employer’s sponsored retirement plan, your IRA contribution may be partially deductible, or not at all, depending on your filing status and adjusted gross income (AGI). For 2013, a single taxpayer with an AGI between $59,000 and $69,000 who is an active participant in a retirement plan will have a reduced deduction and if their AGI exceeds $69,000, the IRA contribution will not be deductible at all. The limits for a couple filing jointly are $95,000 – $115,000 in 2013.
In addition, once you attain the age of 70 ½, you may not make any traditional IRA contributions, even if you are still earning wages. If you find yourself in this situation, you may want to consider a Roth IRA, which does not have any age limitations.