Kiplinger Today

Tax Tips

Fund Your Retirement, Save on Taxes Now

Sandra Block

There's still time to make a 2015 IRA contribution and lower your tax bill.

As you tackle your 2015 tax return, make sure you haven’t overlooked one of the best ways to cut your tax bill and secure your future — funding a traditional IRA. (There is no upfront tax break for funding a Roth IRA.)

See Also: QUIZ: Is It Tax Deductible?

You can make a 2015 IRA contribution up until the time you file your tax return, due April 18, 2016. Depending on your income, you may be able to deduct your IRA contribution even if you or your spouse are covered by another retirement plan at work. To contribute to a traditional IRA, you or your spouse must have earned income from a job and be younger than 70½.

The IRA deduction is an "above the line" adjustment to income, meaning you don't have to itemize your deductions to claim it. It will reduce your adjusted gross income dollar-for-dollar, lowering your tax bill. And your lower adjusted gross income (AGI) could make you eligible for other tax breaks, which are tied to income limits.


Who qualifies

If you are single and don't participate in a retirement plan at work, you can make a tax-deductible IRA contribution of up to $5,500 ($6,500 if you are 50 or older) regardless of your income. If you are married and your spouse is covered by a workplace-based retirement plan but you are not, you can deduct your full IRA contribution as long as your joint AGI doesn't top $183,000 for 2015. You can take a partial tax deduction if your combined income is between $183,000 and $193,000.

But even if you do participate in a retirement plan at work, you can still deduct up to the maximum $5,500 IRA contribution ($6,500 if you're 50 or older) if you are single and your income is $61,000 or less ($98,000 if married filing jointly). And you can deduct some of your IRA contribution if you are single and your income is between $61,000 and $71,000, or if you are married and your income is between $98,000 and $118,000.

Spouses with little or no earned income for 2015 can also make an IRA contribution of up to $5,500 ($6,500 if 50 or older) as long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as your household income doesn't exceed the limits for married couples filing jointly.

Double tax break

Some low- and moderate-income taxpayers get an extra break for contributing to an IRA or other retirement account.

In addition to the usual IRA deduction, you may qualify for a Retirement Savers tax credit of up to $1,000 for contributions to an IRA or other retirement tax plan. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a deduction, which merely reduces the amount of income that is taxed.)

The actual amount of the credit depends on your income. It ranges from 10% to 50% of the first $2,000 contributed to an IRA or other retirement account. To be eligible, your 2015 income can't exceed $30,500 if you're single; $45,750 if you are the head of a household with dependents; or $61,000 if you are married filing jointly. The lower your income, the higher the credit. But you can't claim the Retirement Savers credit if you are under 18, a student, or can be claimed as a dependent on someone else's tax return.

See Also: Tax Breaks for the Middle Class

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