You are not required to make maximum contributions to your IRA each year. In fact you are not required to make any contributions to your IRA in any year. However, if contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference.
If contributions to your IRA for a year were more than the maximum IRA contribution limit, for that year, you can generally apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. However, a penalty or additional tax may apply.
In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. (The additional tax is figured on Form 5329).
You can set up and make contributions to a traditional IRA if:
You can generally set-up a Traditional IRA if you have income from working for yourself or someone else. If your only income is social security or passive income, such as interest, dividends, rental income, or capital gains, that income would not be considered earned income and would not be considered income available for purposes of making an IRA contribution.
A Traditional IRA primarily is a tax-deferred retirement savings vehicle. Tax is generally deferred on Traditional IRA contributions and earnings until the year the IRA owner takes a distribution. A traditional IRA is essentially any IRA that is not a Roth IRA or a SIMPLE IRA. In general, if you have income from working for yourself or someone else, you may establish and contribute to an IRA. The IRA can be a special account that you can set up with a bank, brokerage firm, or other institutional custodian. Alternatively, it can be an individual retirement annuity that you that you can purchase from an insurance company.
If both you and your spouse have compensation and are under age 70½, each of you can set up an IRA. You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.
If you and your spouse file a joint return, only one of you needs to have compensation. You and your spouse cannot both participate in the same IRA.
An IRA holder may have an unlimited number of IRAs with one or more financial organizations. For example, you can set-up an IRA with Bank X in Year 1 and make a contributions and then set-up another IRA with Bank Y in Year 1. Although you can establish more than one IRA, the IRA annual contribution limits applies to all IRAs together. So, if you are under 50 years old and have 3 different IRAs, as of 2015 you cannot make IRA contributions in an amount that will exceed $5,500 including all your IRA accounts ($6500 of you are over the age of 50). The contribution can be allocated to one IRA or divided among all or some of the other IRA accounts.
IRA owners tend to be savers. According to an ICI Research Perspective publication from November 2013, the median financial assets of IRA-owning households were eight times greater than the median financial assets of households that did not own IRAs. Also, IRA owners tend to be more likely to be married, employed, and have college or postgraduate degrees than households that do not own IRAs.
An individual may establish an IRA with a bank, savings, and loan association, credit union, trust company, such as IRA Financial Trust Company, a brokerage firm, or other organization that can demonstrate to the IRS the ability to lawfully administer the IRA account. The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. An individual retirement annuity is generally established through an insurance company.
To establish an IRA, the IRA holder and the financial organization offering the IRA must agree upon certain terms and condition in writing. An IRA is established when the individual and the financial institution sign and receive the IRA opening documents. You can set-up an IRA at any time. When the IRA is opened, it is essentially a trust with no investments. The IRA is funded when the IRA owner makes contributions or funds are transferred or rolled over from another retirement account.
An individual retirement account (IRA) is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. There are two kinds of IRAs: individual retirement accounts (trusts and custodial) and annuities (contracts).
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