Most people can deduct some or all of their IRA contributions, which means there is often some scrambling right before the tax deadline as people make their IRA contributions! For the tax year 2010, people get an extra weekend to contribute to an Individual Retirement Account (IRA) and still deduct the contribution on the tax return, due to the observance of Emancipation Day.
Emancipation Day is observed on April 15, 2011, and is a legal holiday celebrated in the District of Columbia. As a result of this holiday, the tax return deadline as well as the deadline for making IRA contributions for the tax year are moved to April 18, 2011.
Traditional IRA Contribution Eligibility
Not everyone is eligible to contribute to a Traditional IRA. You must be under the age of 70 ½ years old to make contributions. You must also have taxable compensation in the form of salaries, commissions, bonuses, wages, tips or self-employment income to be eligible for contributing. If you and your spouse file a joint return, only one person needs to have taxable compensation to make both partners eligible to contribute to a Traditional IRA but there are Spousal IRA limitations which you can find in IRS Publication 590.
IRA Contributions and Taxes
When you make traditional IRA contributions through the tax filing due date (not including extension periods), most people are eligible to deduct some or all of the contribution. For the current filing year of 2010, contributions can be made through April 18, 2011 and qualify for the tax deduction in 2010. Contributions made beyond April 18, 2011 would count for the following tax year.
To figure out the amount of your IRA contribution deduction, you can use IRS Form 1040A or Form 1040 instructions. There are worksheets designed to make the calculation easy.
Most people like Traditional IRAs because the money in the IRA is not taxed until you begin receiving distributions. This helps you benefit on your tax returns in the years you contribute, rather than waiting for tax benefits when you start receiving the money.
There are contribution limits for traditional IRAs: for 2010, you can contribute $5,000 (or $6,000 if you were 50 years or older by the end of 2010).
Some individuals will qualify for a tax credit equal to a percentage of their IRA contribution. To determine your eligibility, use the Credit for Qualified Retirement Savings Contributions, IRS Form 8880.