Publication 590 - Introductory Material
What's New for 2007
Modified adjusted gross income (AGI) limit for traditional IRA contributions increased. For 2007, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
- More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $52,000 but less than $62,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
For 2007, if you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $156,000 but less than $166,000. If your modified AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? in chapter 1.
Modified AGI limit for Roth IRA contributions increased. For 2007, your Roth IRA contribution limit is reduced (phased out) in the following situations.
- Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $156,000. You cannot make a Roth IRA contribution if your modified AGI is $166,000 or more.
- Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2007 and your modified AGI is at least $99,000. You cannot make a Roth IRA contribution if your modified AGI is $114,000 or more.
- Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.
See Can You Contribute to a Roth IRA? in chapter 2.
Modified AGI limit for retirement savings contributions credit increased. For 2007, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than:
- $52,000 if your filing status is married filing jointly,
- $39,000 if your filing status is head of household, or
- $26,000 if your filing status is single, married filing separately, or qualifying widow(er).
See Can you claim the credit? in chapter 5.
Rollover by nonspouse beneficiary. A direct transfer from a deceased employee's qualified pension, profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (section 403(b)) plan, or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. The IRA is treated as an inherited IRA. For more information about rollovers, see Rollovers under Can You Move Retirement Plan Assets? in chapter 1.
Qualified health savings account (HSA) funding distribution. If you are covered by a high deductible health plan (HDHP), you may be able to make a nontaxable HSA funding distribution from your IRA (other than a SEP or SIMPLE IRA) that would otherwise be included in income. The distribution must be a direct trustee-to-trustee transfer to an HSA. The distribution will be nontaxable to the extent it is not more than the limit on your annual HSA contributions. Generally, you can make only one nontaxable HSA funding distribution during your lifetime. However, if you change your HDHP coverage from self-only to family, you may be able to make an additional distribution during the same year. For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Catch-up contributions in certain employer bankruptcies. If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy in an earlier year, you may be able to contribute up to $7,000 to your IRA. See Catch-up contributions in certain employer bankruptcies in chapter 1 for traditional IRAs and in chapter 2 for Roth IRAs.
Increase in limit on salary reduction contributions under a SIMPLE. For 2007, salary reduction contributions that your employer could make on your behalf under a SIMPLE plan increased to $10,500. For more information about salary reduction contributions, see How Much Can Be Contributed on Your Behalf? in chapter 3.
What's New for 2008
Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2008 will be increased to the smaller of the following amounts:
- $5,000, or
- Your taxable compensation for the year.
If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:
- $6,000, or
- Your taxable compensation for the year.
For more information, see How Much Can Be Contributed? in chapter 1.
Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
- $5,000, or
- Your taxable compensation for the year.
If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
- $6,000, or
- Your taxable compensation for the year.
However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in chapter 2.
Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:
- More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $53,000 but less than $63,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? in chapter 1.
Modified AGI limit for Roth IRA contributions increased. For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations.
- Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $159,000. You cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.
- Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2008 and your modified AGI is at least $101,000. You cannot make a Roth IRA contribution if your modified AGI is $116,000 or more.
- Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.
See Can You Contribute to a Roth IRA? in chapter 2.
Modified AGI limit for retirement savings contributions credit increased. For 2008, you may be able to claim the retirement savings contributions credit if your modified adjusted gross income (AGI) is not more than:
- $53,000 if your filing status is married filing jointly,
- $39,750 if your filing status is head of household, or
- $26,500 if your filing status is single, married filing separately, or qualifying widow(er).
See Can you claim the credit? in chapter 5.
Rollovers from other retirement plans. For 2008, you can roll over amounts from an eligible retirement plan into a Roth IRA. For more information, see Rollovers from other retirement plans in chapter 2.
Reminders
Simplified employee pension (SEP). SEP IRAs are not covered in this publication. They are covered in Publication 560, Retirement Plans for Small Business.
Deemed IRAs. A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA. For this purpose, a “qualified employer plan” includes:
- A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan),
- A qualified employee annuity plan (section 403(a) plan),
- A tax-sheltered annuity plan (section 403(b) plan), and
- A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.
Statement of required minimum distribution. If a minimum distribution is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. The report or offer must include the date by which the amount must be distributed. The report is due January 31 of the year in which the minimum distribution is required. It can be provided with the year-end fair market value statement that you normally get each year. No report is required for section 403(b) contracts (generally tax-sheltered annuities) or for IRAs of owners who have died.
IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your return as tax-exempt interest.
Hurricane tax relief. Special rules apply to the use of retirement funds (including IRAs) by qualified individuals who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. While qualified hurricane distributions can no longer be made, special rules apply to the repayment of these distributions. See chapter 4, Hurricane-Related Relief, for information on these special rules.
Introduction
This publication discusses individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement.
What are some tax advantages of an IRA? Two tax advantages of an IRA are that:- Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances, and
- Generally, amounts in your IRA (including earnings and gains) are not taxed until distributed. In some cases, amounts are not taxed at all if distributed according to the rules.
- Setting up an IRA,
- Contributing to an IRA,
- Transferring money or property to and from an IRA,
- Handling an inherited IRA,
- Receiving distributions (making withdrawals) from an IRA, and
- Taking a credit for contributions to an IRA.
How to use this publication
The rules that you must follow depend on which type of IRA you have. Use Table I-1 to help you determine which parts of this publication to read. Also use Table I-1 if you were referred to this publication from instructions to a form.
Comments and suggestions
We welcome your comments about this publication and your suggestions for future editions. You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Ordering forms and publications
Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
Tax questions
If you have a tax question, check the information available on www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.
Table I-1. Using This Publication
| IF you need information on ... | THEN see ... |
| traditional IRAs | chapter 1. |
| Roth IRAs | chapter 2, and parts of chapter 1. |
| SIMPLE IRAs | chapter 3. |
| hurricane-related relief | chapter 4. |
| the credit for qualified retirement savings contributions | chapter 5. |
| how to keep a record of your contributions to, and distributions from, your traditional IRA(s) | appendix A. |
| SEP IRAs and 401(k) plans | Publication 560. |
| Coverdell education savings accounts (formerly called education IRAs) | Publication 970. |
IF for 2007, you
| THEN see ... |
| first figure your modified adjusted gross income (AGI) | appendix B worksheet 1. |
| then figure how much of your traditional IRA contribution you can deduct | appendix B worksheet 2. |
| and finally figure how much of your social security is taxable | appendix B worksheet 3. |
Useful Items - You may want to see:
Publications
- 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
- 571 Tax-Sheltered Annuity Plans (403(b) Plans)
- 575 Pension and Annuity Income
- 939 General Rule for Pensions and Annuities
Forms (and instructions)
- W-4P
Withholding Certificate for Pension or Annuity Payments - 1099-R
Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. - 5304-SIMPLE
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)-Not for Use With a Designated Financial Institution - 5305-S
SIMPLE Individual Retirement Trust Account - 5305-SA
SIMPLE Individual Retirement Custodial Account - 5305-SIMPLE
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)-for Use With a Designated Financial Institution - 5329
Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts - 5498
IRA Contribution Information - 8606
Nondeductible IRAs - 8815
Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 - 8839
Qualified Adoption Expenses - 8880
Credit for Qualified Retirement Savings Contributions
See chapter 6 for information about getting these publications and forms.
Table I-2. How Are a Traditional IRA and a Roth IRA Different? This table shows the differences between traditional and Roth IRAs. Answers in the middle column apply to traditional IRAs. Answers in the right column apply to Roth IRAs.
| Question | Answer | |
| Traditional IRA? | Roth IRA? | |
| Is there an age limit on when I can set up and contribute to a | Yes. You must not have reached age 70½ by the end of the year. See Who Can Set Up a Traditional IRA? in chapter 1. | No. You can be any age. See Can You Contribute to a Roth IRA? in chapter 2. |
| If I earned more than $4,000 in 2007 ($5,000 if I was 50 or older by the end of 2007), is there a limit on how much I can contribute to a | Yes. For 2007, you can contribute to a traditional IRA up to:
There is no upper limit on how much you can earn and still contribute. See How Much Can Be Contributed? in chapter 1. | Yes. For 2007, you may be able to contribute to a Roth IRA up to:
but the amount you can contribute may be less than that depending on your income, filing status, and if you contribute to another IRA. See How Much Can Be Contributed? and Table 2-1 in chapter 2. |
| Can I deduct contributions to a | Yes. You may be able to deduct your contributions to a traditional IRA depending on your income, filing status, whether you are covered by a retirement plan at work, and whether you receive social security benefits. See How Much Can You Deduct? in chapter 1. | No. You can never deduct contributions to a Roth IRA. See What Is a Roth IRA? in chapter 2. |
| Do I have to file a form just because I contribute to a | Not unless you make nondeductible contributions to your traditional IRA. In that case, you must file Form 8606. See Nondeductible Contributions in chapter 1. | No. You do not have to file a form if you contribute to a Roth IRA. See Introduction in chapter 2. |
| Do I have to start taking distributions when I reach a certain age from a | Yes. You must begin receiving required minimum distributions by April 1 of the year following the year you reach age 701/. See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. | No. If you are the owner of a Roth IRA, you do not have to take distributions regardless of your age. See Are Distributions Taxable? in chapter 2. |
| How are distributions taxed from a | Distributions from a traditional IRA are taxed as ordinary income, but if you made nondeductible contributions, not all of the distribution is taxable. See Are Distributions Taxable? in chapter 1. | Distributions from a Roth IRA are not taxed as long as you meet certain criteria. See Are Distributions Taxable? in chapter 2. |
| Do I have to file a form just because I receive distributions from a | Not unless you have ever made a nondeductible contribution to a traditional IRA. If you have, file Form 8606. | Yes. File Form 8606 if you received distributions from a Roth IRA (other than a rollover, recharacterization, certain qualified distributions, or a return of certain contributions). |
Note. You may be able to contribute up to $7,000 if you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy in an earlier year. For more information, see Catch-up contributions in certain employer bankruptcies in chapter 1 for traditional IRAs and in chapter 2 for Roth IRAs.
