When I did my taxes last year, the tax preparer said based on my W-2 that I CAN NOT contribute to an IRA. I withdrew my contributions for the year and have not continued since.
What is the limit to use an IRA? If I am over, what do I do with the money that is still sitting in there?
Thank you in advance,
2007-01-19 04:38:38 · 7 answers · asked by catchotheday_98 1 in Business & Finance ➔ Personal Finance
Anyone can contribute to an IRA, the question is will your contributions be tax deductable?
2007-01-19 04:42:36 · answer #1 · answered by paul_p_25 3 · 1⤊ 0⤋
Your taxperparer is an idiot. Really. Do yourself a huge favor and get a new one. As the guy before me said..anyone can contribute to an IRA. They do set a limit as to how much your can contribute annually. For 2007 that limit is $4000, and will rise to $5000 in 2008. Look here for some info. Also, depending on your retirement goals and how much you can comfortably put away each year $4000 may not be a lot of money to you. It isn't forme. I ain't rich, but I put some in my IRA, and some into a tax shelter. You should consider one of those. There are many out there..even banks overseas that pay 8% interest and don't report your earned interest to the IRS. I won't advise you use or don't use one of them..it's up to you.
2007-01-19 12:53:26 · answer #2 · answered by crazylifer 3 · 1⤊ 0⤋
Paladin's answer was very good, except for one thing.
You cannot get a deductible IRA if either you or your spouse is eligible for a 401k at work REGARDLESS of whether either of you participate in it. And this applies if you were eligible at all for the year, even 1 day (I once left a company 8 days before becoming eligible, so I was able to open one for the year).
If neither of you is eligible you can open a deductible IRA at any income level. If you are under certain incomes, you can open an IRA and still have a 401k at work (at one point it was less the $25,000, with a phaseout until $40k, probably indexed for inflation). But the silly thing is, if you make that small an amount of money, you probably can't afford to contribute to both an IRA and a 401k.
2007-01-19 13:59:30 · answer #3 · answered by Quixotic 3 · 0⤊ 0⤋
Traditional IRA Eligibility:
If you have earned income and are under age 70 1/2, then you may make a contribution to a traditional IRA. The only question is whether that contribution will be deductible. That depends on your income tax filing status and whether you (or your spouse) participated on any day of the year in an employer's qualified retirement plan.
In general, if neither you nor your spouse participated in a 401(k) or other qualified retirement plan, your contribution will be fully deductible.
If you (or your spouse) did participate in an employer-sponsored retirement plan, then your contribution to a traditional IRA might be deductible, depending on your modified adjusted gross income (AGI).
AGI (for 2007 contributions)
$0 to $10,000 for married couples filing separately
$52,000 to $62,000 for single or head of household filers
$83,000 to $103,000 for joint filers
$156,000 to $166,000 if you are not covered by a qualified retirement plan, but your spouse is (and you're filing jointly)
Roth IRA eligibility
If you have earned income, then you may contribute to a Roth IRA regardless of your age, provided your modified AGI doesn't exceed certain limits. If you're a single filer, then you can make a full contribution to a Roth if your modified AGI is less than $99,000. You may make a partial contribution to a Roth when your modified AGI is between $99,000 and $114,000. But when your modified AGI reaches $114,000, you're no longer eligible.
The phase-out range for a Roth IRA contribution for a married couple filing a joint return is $156,000 to $166,000.
We should also point out that there is a traditional nondeductible IRA, but you won't realize tax benefits comparable to those available through Roth or traditional tax-deductible IRAs. However, if your income prohibits you from making contributions to the other IRAs, a traditional nondeductible IRA is still attractive because of the tax-deferred growth.
As you can see, your tax preparer gave you some bad information. Fortunately, you did not make any withdrawals which would have subjected you to needless penalties and taxes. (of course, you could have sued the preparer or the firm for any losses.)
In addition, you have until April 15th to make 2006 contributions. Maximum contribution = $4,000, add $1,000 if you are over 50 years of age.
2007-01-19 13:32:29 · answer #4 · answered by PALADIN 4 · 0⤊ 0⤋
To the best of my knowledge, earnings have no bearing on owning an IRA. There are limits to contributions, but that is a different story. Check with another tax adviser, and consider having someone else do your taxes.
2007-01-19 12:49:55 · answer #5 · answered by tom 3 · 0⤊ 0⤋
Are you sure your tax preparer said you couldn't deduct the contributions, or maybe they were talking about the Roth IRA (both the deductible and Roth IRAs are restricted if you have too much income, but the traditional (non-deductible) IRA would not have an earnings cap).
2007-01-19 14:17:48 · answer #6 · answered by derek 4 · 0⤊ 0⤋
You should have left your money....it's simply not deductible, but the earnings on it would have been tax deferred. The limit is dependent upon your marital status, whether your spouse is covered by a retirement plan, whether YOU are covered and your income level.
What do you do with your money is the same as last year...leave it in. You've already lived without it..may as well let it sit and earn you money, perhaps you can retire a year earlier.
2007-01-19 13:57:09 · answer #7 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋