Be aware of the contribution and deduction limits
This year you can contribute up to $5,500 ($6,500 if you’re 50 or older) to a traditional or Roth IRA. As long as you file a joint tax return, you and your spouse can each contribute to an IRA even if only one spouse has earned income. If you haven’t already reached your contribution limit, you have until April 16, 2018 to make contributions for 2017.
When you contribute to a traditional IRA, your contributions are deductible on your tax return. If you’re covered by a retirement plan at work and fall into one of the following scenarios, you will only be entitled to a partial deduction.
• Single or head of household with a modified AGI more than $62,000 but less than $72,000.
• Married filing jointly or qualifying widow(er) with a modified AGI more than $99,000 but less than $119,000.
• Married filing separately with a modified AGI less than $10,000.
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Avoid making excess contributions
If your contributions exceed the IRA limits for 2017, you will have to pay a six percent tax on the excess amount. This is not a one-time penalty, you will continue to pay taxes on the excess amount as long as the money remains in your account. In order to avoid the taxes, the excess must be withdrawn by the tax deadline.
Take your required minimal distributions
Individuals who are at least 70 ½ years old must take a required minimum distribution from their traditional IRA by December 31st. If you turned 70 ½ in 2017, the deadline to take your distribution is April 1, 2018. If you fail to take your required minimum distribution by the deadline, you’ll have to pay a 50 percent excise tax on the amount you failed to withdraw.
IRA distributions may impact your premium tax credit
If you plan to take an IRA distribution at the end of the year and expect to claim the premium tax credit, choose your distribution amount carefully. Taxable distributions increase your income which may make you ineligible for the premium tax credit. If your distribution boosts your household income over the 400% federal poverty line for your family size, you’ll have to repay all of the advance credit payments made on your behalf.