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Federal Employees News Digest : Feb. 25, 2013
February 25, 2013 Vol. 62, No. 30 7 Visit us on the Internet at www.FederalDaily.com Federal employees have until the income tax filing deadline of Apr. 16, 2013, to make their 2012 IRA Individual Retirement Arrangement (IRA) contributions. This column discusses the different types of IRAs, requirements for contributing to an IRA, and the individual IRA contri- bution limits for 2012. The term IRA encompasses: (1) Individual Retirement Account, a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and (2) Individual Retirement Annuity, by which an indi- vidual purchases an annuity contract or an endowment contract from a life insurance company. This column discusses the Individual Retirement Account, hereafter referred to as an "IRA". The one requirement that allows an individual to contribute to an IRA is that the individual, or if married the individual's spouse, has "earned income" during the year for which a contribution is made. Earned income includes salary or wages (individual receives a W2) or has self- employment net income. There are three types of IRAs available for individuals to contribute to for 2012: (1) traditional deductible IRA; (2) nondeductible traditional IRA, and (3) Roth IRA. An individual can contribute to more than one type of IRA provided that the total contributions do not exceed the total annual contribution limit. The type(s) of IRAs an individual can contribute to is determined by: (1) the amount of the individual's earned income; (2) the individual's age; and (3) whether the individual is covered by an employer-sponsored pension plan. All permanent federal employees are covered by a federal govern- ment-sponsored pension plan. The following table summarizes the various features of the three IRAs, including their limits/requirements for 2012. Employees should note that April 16, 2013, is the deadline for 2012 IRA contributions, even if a tax filing extension is requested. Also, individual tax filers have the option of direct depositing all or some of their 2012 federal income tax refund into their existing traditional or Roth IRA. IRS Form 8888 is used to request a tax refund direct deposit to an IRA. Informed Investor April 16 is deadline for IRA contributions By Edward A. Zurndorfer Item Traditional IRA (Nondeductible) Traditional IRA (Deductible) Roth IRA Basic Eligibility Requirements Any person under age 70.5 who has earned income Any person under age 70.5 who has earned income Any person of any age who has earned income1 Maximum contribution for 2012 Generally, the lesser of $5,000 ($10,000 for a married couple) Or 100% of earned income2 Is the contribution deductible? No Yes, if neither spouse is covered by a qualified plan (QP). If single and covered by a QP, contribution is deduct- ible if modified adjusted gross income (MAGI) is less than $58,000. Deduction phased out for MAGI between $58,000 and $68,000. If MFJ and one spouse is covered by a QP, the nonparticipant spouse may make a deductible contribution if MAGI is $173,000 or less. This deduction is phased out for MAGI between $173,000 and $183,000. The participant spouse may make a deductible contribution if MAGI is $92,000 or less. This deduction is phased out for MAGI between $92,000 and $112,0003 No Are earnings currently taxed? No No No Taxation of withdrawals at death and disability4 Contributions are received tax-free and earnings are taxable. All distributions are taxable. No taxation of qualified distribu- tions. Taxation of $10,000 withdrawn for first-time home purchase4 Proportionate part attributable to earnings is taxable All $10,000 subject to income tax "Qualified" distributions are not subject to tax. The earnings por- tion of a "non-qualified" distribu- tion is taxable at ordinary rates.5 Are there required minimum distributions? Distributions must start by April 1 of the year following the year the account owner reaches age 70.5. Distributions must start by April 1 of the year following the account owner reaches age 70.5. No minimum distribution is required during the life of owner. Federal bankruptcy protection Federal bankruptcy law protects assets in all IRAs, up to $1,171,650. Funds rolled over from qualified plans are protected without limit. 1 For 2012, the maximum contribution to a Roth IRA is phased out for single taxpayers with modified adjusted gross income (MAGI) between $110,000 and $125,000. For married couples filing jointly (MFJ), the phase-out range is a MAGI of $173,000 to $183,000. For married individuals filing separately (MFS), the phase-out range is a MAGI of $0 to $10,000. 2 If an IRA owner is age 50 of older as of 12/31/2012, he or she may contribute an additional $1,000 ($2,000 if spouse is also over 50). 3 For 2012, for taxpayers using the MFS filing status, the phase-out range is $0 - $10,000. 4 For individuals under age 59.5, the 10% penalty tax does not apply in this situation. 5 Generally, a "qualified" distribution is one made at least five years after a contribution is first made to a Roth IRA and because the owner reaches age 59.5, dies, becomes disabled, or uses the funds to pay for first-time homebuyer expenses. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies.
Feb. 18, 2013
March 4, 2013