An Individual Retirement Arrangement, or IRA, is a personal savings plan that allows taxpayers to set aside money for retirement, generally being able to deduct some or all of their contributions to the IRA. Amounts in an IRA, including earnings, generally are not taxed until distributed. IRAs cannot be owned jointly, however any amounts remaining in an IRA upon the taxpayer's death can be paid to the beneficiary or beneficiaries.
Any IRA that is not a Roth IRA or a SIMPLE IRA. To contribute to a traditional IRA, the taxpayer must be under age 70-1/2 at the end of the tax year. The taxpayer, or their spouse, if married filing jointly, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment. In addition, taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes. Compensation does not include earnings and profits from property, such as rental income, interest and dividend income, any amount received as pension or annuity income, or deferred compensation.
The deadline for making a contribution to a traditional IRA for the year is the due date of the return, not including any extensions of time to file. The taxpayer may choose to take the deduction on their return filed before the contribution is actually made, provided they make the contribution by the return due date.
To report nondeductible contributions to a traditional IRA, from the Main Menu of the Tax Return (Form 1040), select:
- Nondeductible IRAs (8606)
- Select either Taxpayer or Spouse
- Traditional IRAs
A Roth IRA is an individual retirement account or annuity in which investments are made with taxable dollars, but earnings are tax-free and withdrawals are tax-free after age 59-1/2.
If the taxpayer, spouse, or both are covered by a qualified retirement plan, the IRA deduction may be reduced or eliminated depending on the amount of their Modified Adjusted Gross Income and their filing status. The deduction can be figured using the worksheet in the Form 1040 Instructions or in Publication 590.
To report a conversion to or a distribution from a Roth IRA, from the Main Menu of the Tax Return (Form 1040), select:
- Nondeductible IRAs 8606
A SEP is an employer-sponsored plan that allows an employer to make contributions to a traditional IRA for the employee. Generally, distributions from SEP IRAs are subject to the same withdrawal and tax rules that apply to traditional IRAs. Refer to Publication 560 for more information about SEPs.
To report contributions to a SEP by the taxpayer or spouse, from the Main Menu of the Tax Return (Form 1040), select:
- SEP, SIMPLE & Qualified Plans
A SIMPLE ("Savings Incentive Match Plan for Employees") is a retirement plan that self-employed individuals and certain small employers can set up for the benefit of their employees. It is a written salary reduction agreement between the employee and employer that allows the employee or self-employed individual to:
- Reduce their compensation by a certain percentage each pay period, and
- Have the salary reductions contributed to a SIMPLE IRA on their behalf. These contributions are called Salary Reduction Contributions.
To report this deduction, from the Main Menu of the Tax Return (Form 1040), select:
- SEP, SIMPLE & Qualified Plans
NOTE: This is a guide on entering information into the TaxSlayer Pro program. This is not intended as tax advice.