You have until April 15, 2014, to make your 2013 IRA contributions, but there are five important points to consider prior to year-end:
1. Contribution amount – You can contribute up to $5,500 ($6,500 if you are age 50 or older by the end of 2013) or your taxable compensation, if less, to a traditional or Roth IRA. However, you may not be able to deduct your traditional IRA contributions if you or your spouse is covered by a retirement plan at work and your income is above a certain level. If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. Although you have until April 15, 2014, to make your 2013 IRA contribution, the sooner you make the contribution, the sooner your investment earnings will be covered by the plan.
2. Excess contributions – If you have exceeded the 2013 IRA contribution limit, you should withdraw the excess contributions from your account by the due date of your 2013 tax return, including extensions. Otherwise, you must pay a 6 percent tax each year on the excess amounts remaining in your account.
3. Tax credit – You may be able to take a retirement savings contribution tax credit, or saver’s credit, of up to $1,000 ($2,000 if filing jointly) for your contributions to either a traditional or Roth IRA. The amount of the credit is based on the contributions you make and your credit rate. Your credit rate can be as low as 10 percent or as high as 50 percent. Your credit rate depends on your income and your filing status.
4. Required minimum distribution – If you are age 70 1/2 or older, you must take a required minimum distribution (RMD) from your traditional IRA by Dec. 31, 2013 (April 1, 2014, if you turned age 70 1/2 during 2013). You must calculate the RMD separately for each of your traditional IRAs, but you can withdraw the total amount from any one or more of them. You face a 50 percent excise tax if you do not take your RMD on time. You are not required to take minimum distributions from Roth IRAs.
5. Qualified charitable distribution – You can exclude from gross income up to $100,000 of a 2013 qualified charitable distribution, which is a distribution:
- Paid directly from your IRA (not an ongoing SEP or SIMPLE IRA);
- To a qualified charity;
- After you have reached age 70 1/2; and
- By Dec. 31, 2013.
You can use a qualified charitable distribution to satisfy the required minimum distribution for your IRA for the year. However, you cannot deduct this amount as a charitable contribution on your tax return.