10 IRA Contribution Rules You Must Know

By Sarah Brenner, IRA Analyst

Slott Report 

Tax season is here. This is the time when many IRA owners consider making contributions for the prior year. Are you planning on making a 2015 contribution to your IRA? Here are 10 IRA contribution rules you need to know.

1. The deadline for making your 2015 IRA contribution is the tax-filing deadline, Monday, April 18, 2016. Why not Friday, April 15? Well, Emancipation Day is celebrated on Friday, April 15 in the District of Columbia. As a result, the tax-filing deadline is pushed back nationwide to the following Monday. Residents of Maine and Massachusetts have until April 19, 2016 because of those states’ celebrations of Patriots’ Day.
   Remember, even if you have an extension for filing your 2015 federal income taxes, your deadline for making a Traditional or Roth IRA contribution is not extended.
    
2. Your IRA contribution generally may not exceed your taxable compensation or earned income for 2015. However, if you are married you may be eligible to make a spousal contribution using your spouse’s taxable compensation.
    
3. The maximum contribution that may be made to an IRA for 2015 if you are 50 or younger is $5,500. For those who reach age 50 in 2015, the maximum contribution limit is $6,500. The annual limit is aggregated for traditional and Roth IRAs. For example, you could contribute $2,500 to your Roth IRA and $3,000 to your traditional IRA. You may not contribute $5,500 to your traditional IRA and $5,500 to your Roth IRA for 2015. If you don't follow the rules, this horror story could happen to you.
    
4. When your modified adjusted gross income (MAGI) exceeds $116,000, if you are single, or $183,000, if you are married filing jointly, your ability to contribute to a Roth IRA begins to be phased out for 2015. There are no income limits for Traditional IRA contribution. Here is the full 2015 Roth IRA eligibility table.
    
5. Your participation in your company plan does not affect your eligibility to make a traditional or Roth IRA contribution. However, if you are an active participant in your company’s retirement plan, and your MAGI exceeds $61,000 if you are single, or exceeds $98,000 if you are married, your ability to deduct your 2015 traditional IRA contribution begins to phase out. If you are not an active participant, but your spouse is, your ability to deduct phases out when MAGI reaches $183,000. Here is the full 2015 Traditional IRA Deductibility table.
    
6. If you are 18 years old or older in 2015, and are not a full-time student, you may be able eligible for the SAVERS tax credit of up to $1,000, if your income is below certain limits. You may also be able to deduct your traditional IRA contribution for a double tax benefit.
    
7. You may not contribute to a traditional IRA for the year you reach age 70 ½ or any year after. However, you may make Roth IRA contributions at any age, if you are otherwise eligible.
    
8. Your contribution to your IRA must be made in cash (check, money order etc.) You may not contribute shares of stock to your IRA as a tax-year contribution.
    
9. Be sure to designate in writing that you are making your IRA contribution for 2015. If you fail to do so, a contribution you make in 2016 for the prior year (2015) may be treated as a current year (2016) contribution by the IRA custodian.
    
10. Change your mind? You can remove or recharacterize your 2015 IRA contribution by October 17, 2016. If you remove your contribution, the contribution will not be subject to tax or penalty although the income attributable to the contribution may. If you recharacterize your contribution, you can transfer your contribution (plus attributable net income) tax and penalty free from a traditional IRA to a Roth IRA or vice versa. Be sure to check with your tax advisor before either removing or rechacterizing a 2015 IRA contribution because this may affect your tax return.

RMD Statements for IRA Owners Are in the Mail: 7 Things You Need to Know

By Sarah Brenner, IRA Analyst

If you are required to take an RMD (required minimum distribution) from your IRA for 2016, your IRA custodian is required to send an RMD statement to you by January 31, 2016. Here are seven things you need to know about this important information, which will be arriving in your mail sometime in the next few weeks.

1. RMD Required

The RMD statement reminds you that you have an RMD for 2016. Statistics have shown that many IRA owners do not take their RMDs. The IRS requirement that custodians send RMD statements is in part designed to improve those statistics. Your RMD statement puts you on notice early in 2016 that you have an RMD for the year.

2. Deadline

The RMD statement will also tell you the deadline for taking your 2016 RMD. If you turn age 70 ½ in 2016, this is the first year for which you’ll have to take an RMD, and your statement will tell you that your deadline for taking your 2016 RMD is April 1, 2017. If you turned age 70 ½ in a previous year, your statement will tell you that your RMD deadline is December 31, 2016

3. Amount

Your RMD statement may include an your RMD amount for 2016. Some IRA custodians do this calculation for you. Other IRA custodians include a statement offering to calculate your RMD upon request.

4. Reporting to the IRS

The statement will tell you that the IRA custodian will be reporting the fact that you have an RMD for 2016 to the IRS. Consider yourself warned that the IRS has been informed that you must take a 2016 RMD!

5. No RMD Statements for Beneficiaries

If you are an IRA beneficiary, you may have to take an RMD from an inherited IRA for 2016. Currently, the IRS does not require IRA custodians to send RMD statements to beneficiaries. A beneficiary will not receive an RMD statement, but will likely still need to take a 2016 RMD.

6. May Be Included with FMV Statements

IRA custodians are required to provide IRA owners with the December 31, 2015 fair market value (FMV) of their IRAs by January 31, 2016. Your IRA sponsor may include your RMD statement with the FMV statement.

7. Default Calculation Use

Be careful! While your IRA custodian may provide you with your calculated RMD amount, your custodian is permitted to use certain defaults in the calculation. They may use the December 31, 2015 balance without any adjustments and may use the Uniform Lifetime table. For most IRA owners, this will result in an accurate RMD calculation, but for some it will not. For example, if you had an outstanding rollover or transfer, or if your spouse is the sole beneficiary of your IRA and is more than 10 years younger than you, you will need to adjust the calculation to find your actual RMD for 2016.

The RMD statement is for information purposes. You do not need to file it with your tax return. Take a few minutes to read through your statement and be sure there are no errors. If you have any questions about the statement or your RMD in general, you may want to consult with a knowledgeable advisor.