Here are the top 10 things the IRS wants you to know about setting aside retirementmoney in a traditional IRA.
1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from it.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for your IRA contributions.
5. For 2011, the most you can contribute to your traditional IRA is generally the smaller of the following amounts: $5,000 for most taxpayers, $6,000 for taxpayers who were 50 or older at the end of 2011 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to deduct your IRA contribution or claim the Credit for Qualified Retirement Savings Contributions.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. To contribute to an IRA, you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional rules.
10. Refer to IRS Publication 590 for more information on contributing to your IRA account.
Form 8880 and Publication 590 can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).