Thursday, March 20, 2014

Tax Time IRA Questions and Answers

Q. Can I do a conversion now for 2013?

A. No. In order to have a 2013 conversion, the funds must leave the IRA or plan account in 2013. They don’t have to be in the Roth IRA in 2013 since you can take a withdrawal in December, 2013 and have 60 days to complete a rollover (conversion) to the Roth IRA in January or February, 2014. But the funds must leave the traditional IRA or the employer plan by December 31, 2013.

 Q. I am contributing to my employer plan. Can I also make an IRA contribution?

 A. Yes. As long as you have earned income or compensation and will not be 70 ½ or older during the year, you can make an IRA contribution. If your income exceeds certain limits you may not be able to deduct the contribution. You can also make a Roth IRA contribution even if you are 70 ½ or over unless your income exceeds certain limits. You can find all of those limits at A contribution can also be made for a non-working or lower wage spouse based on your earnings subject to the income limits noted above (known as a spousal IRA contribution).

Q. I was told I can still set up a SEP IRA for 2013 and fund it up to October 15th. Is this right?

 A. Yes. As long as you meet the criteria for establishing an employer plan, you can establish and fund a SEP IRA up to the tax filing deadline, plus extensions, for your business. We examined that issue in more detail here. Keep in mind that if you have any employees, including your spouse, whatever contribution is made to your SEP must also be made for any eligible employees. You cannot fund just your own account.

Q. Someone died last year. She had earned income. Can we make a contribution to her IRA or Roth IRA account for last year?

 A. No. You can only make a contribution for someone who is alive. The theory behind this is that if someone dies during the tax year, they no longer have a need to save for retirement.