IRA Deduction & Contribution

IRA stands for individual retirement account. It is a form of individual retirement plan. You may be able to claim a deduction on your individual federal income tax return for the amount you contributed to your IRA.

For 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:

   - $5,500 ($6,500 if you are age 50 or older), or

   - your taxable compensation for the year.

• Traditional IRAs - contribution to traditional IRA maybe fully or partially deductible, amounts in traditional IRA (incl. earnings and gains) are not taxed until distributed.

          1. If you don't have retirement plan at work, deduction is allowed in full.

          2. If you (or your spouse if married) are covered by a retirement plan at work, deduction may be limited if income exceeds certain levels. 

2013 IRA Deduction Limits - if you ARE covered by a retirement plan at work

2013 IRA Deduction Limits - if you are NOT covered by a retirement plan at work       

• Roth IRA - benefits and disadvantages

         - investment income earned in Roth IRAs is not reported on annual tax return

         - qualified distribution from Roth IRAs is not taxable

         - Roth IRAs do not have mandatory minimum distribution

         - early withdrawals from a Roth IRAs can be subject to taxes and penalties

         - losses in a Roth IRA are tax-deductible only if cash out entire Roth IRAs.

         

2013 Federal Income Tax Bracket

2013 Federal Income Tax Bracket

Social Security & Medicare Tax

• Employee -- social security tax rate 6.2% on income under $113,700; medicare tax 1.45% on all income and additional 0.9% on income more than $200,000 ($250,000 married jointly).
• Employer -- social security tax rate 6.2% on income under $113,700; medicare tax 1.45% on all income.
• Self-employed -- social security tax rate 12.4% on income under $113,700; medicare tax 2.9% on all  income.