Published March 23, 2021
WASHINGTON – The Internal Revenue Service notes that taxpayers of all ages can claim a deduction in their 2020 tax return for contributions to their Individual Retirement Arrangement concluded by April 15, 2021. There is no longer a maximum age for paying IRA contributions.
The IRA is designed to enable employees and the self-employed to save for retirement. Most working taxpayers have the right to run a traditional or Roth IRA or add money to an existing account.
Contributions to a traditional IRA are usually tax deductible, and distributions are taxable. There is still time to make contributions that count for a 2020 tax return if made by April 15, 2021. Taxpayers can file a claim seeking a traditional IRA contribution before the contribution is actually made. The contribution must then be made by the date of arrival in April. Although contributions to the Roth IRA are not tax deductible, qualifying distributions are non-taxable. In addition, low- and moderate-income taxpayers who make these contributions may also qualify for credit savings.
In general, eligible taxpayers can contribute up to $ 6,000 to IRAs by 2020. For someone who was 50 or older at the end of 2020, the limit is increased to 7,000 US dollars. Restrictions on taxpayers aged 70 and over to contribute to their IRA were removed in 2020.
Eligible contributions for one or more traditional IRAs are deducted up to the contribution limit or 100% of the taxpayer’s fee, whichever is less.
For 2020, if a taxpayer is covered by a pension plan in the workplace, the deduction for contributions to a traditional IRA is usually reduced depending on the taxpayer’s modified adjusted gross income:
Singles or holders of household records with an income of $ 65,000 or less may take a full deduction up to the amount of their contribution limit. For income greater than $ 65,000 but less than $ 75,000, there is a partial deduction, and if $ 75,000 or more there is no deduction.
Applicants who have jointly applied for or a qualified widow (s) with an income of $ 104,000 or less are allowed a full deduction up to the amount of the contribution limit. Those who contribute more than $ 104,000 but less than $ 124,000 can claim a partial deduction, and if their income is at least $ 124,000, a deduction is not available.
For joint files, where the spouse contributing to the IRA is not covered by the work plan but is covered by their spouse, a full deduction is available if their modified AGI is $ 196,000 or less. A partial deduction exists if their income is between $ 196,000 and $ 206,000, and there is no deduction if their income is $ 206,000 or more.
Applicants who have applied separately and have an income of less than $ 10,000 may request a partial deduction. If their income is at least $ 10,000, there is no deduction.
Worksheets are available in Form 1040 or In Publication 590-A, Attachments for Individual Pension Arrangements. A deduction is requested on Form 1040, Appendix 1. On Form 8606, non-educational contributions to the traditional IRA are reported.
Although contributions to Roth IRAs are not tax deductible, the maximum allowable amount of these contributions begins to be phased out for taxpayers whose modified adjusted gross income is above a certain level:
For applicants who are jointly filed or qualify as a widow, that level is $ 196,000.
For those who file separately as a household or married person and have not lived with their spouse at any time during the year, that level is $ 124,000.
For applicants who applied separately and lived with their spouse at any time of the year, any amount of modified AGI reduces the limit on their contribution.
A savers loan, also known as a pension savings loan, is often available to IRA contributors whose adjusted gross income falls below a certain level. In addition, starting in 2018, certain beneficiaries may be eligible for a contribution credit in their account to achieve a better life experience (ABLE). For 2018, revenue limits are:
32,500 USD; alone and the wedding application separately
48,750 USD; head of household
$ 65,000; married together
Taxpayers should use Form 8880, Qualified Pension Savings Contribution Credit, to request a saver loan and instructions for details on properly determining the loan.
Taxpayers can find answers to questions, forms, and instructions, and simple tools online at IRS.gov. They can use these resources to help when needed, at home, at work or on the go.
This statement is part of a series called Tax Time Guide, a resource that helps taxpayers file an accurate tax return. Additional assistance is available in Publication 17, Your Federal Income Tax for Individuals.