Now is the time to make that IRA contribution

Monday is the deadline for making a 2012 IRA contribution.

Only folks with earned income (wages or self-employed profits) are eligible to make IRA contributions.

The 2012 IRA contributions are limited to $5,000 or, if age 50 or older, $6,000 for each person.

The special rules on spousal IRAs allow a non-working spouse who has no earned income to do an IRA if the other spouse has enough earned income.

For example, if Joe has $20,000 of wages and Mary has none, Joe can do an IRA contribution and Mary can do a spousal IRA contribution as well.

If Joe had only $7,000 of earned income and Mary had none, then the total IRA contributions are limited.

Congress also has provided that if Joe is older than 70½ and working, but Mary is retired and is 58, Joe is not allowed to do an IRA contribution because he is older than 70½. Mary would be able to do a spousal IRA contribution, even though she has no earned income of her own.

The kinds of IRA contributions include the regular or traditional IRA that gives a tax-return deduction on page 1 of form 1040. If the contribution is for the year 2012 and made on or before April 15, 2013, it is allowed to be a 2012 tax-saving deduction.

Of course, another kind of IRA contribution is one to a Roth IRA. As you know, the contributions to a ROTH IRA do not give a current tax deduction. However, if the Roth IRA is in place at least five years and you’re older than 50½, all distributions are tax-free. That means the earnings escape income taxation.

Also, the rule for any distributions from a Roth IRA is, contributions (that gave no tax deduction) are deemed to be paid out first. So if, two years after making contributions to a Roth IRA, you need the money back for an emergency, those contributions can be distributed and are not taxed.

Another kind of IRA contribution is a regular or traditional IRA that is non-deductible. Then, that can be converted to a Roth IRA with only the earnings being taxed.

A wonderful idea is to help a young person who has some wages or earned income do a Roth IRA (limited to the earnings amount and the $ 5,000 maximum in 2012).

Did you hear? “When I was young, I found out that the big toe always ends up making a hole in a sock. So I stopped wearing socks.” — Albert Einstein

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.