Establishing a traditional IRA account is a great way to save for your retirement. Once opened, you can contribute a maximum of $5,000 annually to your account (as of 2009). If you are older than age 50, the IRS has established "catch up" provisions enabling you to contribute even more. Setting up an IRA will not offset your income per se, but it will affect your adjusted gross income. Your AGI is the amount which determines in part, your federal tax obligation. Every dollar you contribute to your traditional IRA, will reduce your AGI by the corresponding amount.
Things You'll Need
- Traditional IRA
- Federal income tax forms or tax calculation software
- Annual IRA contribution form issued by the firm managing your IRA
As you begin completing your federal income tax, list the amount you contributed to your IRA. On the 2008 income tax form, this data was entered on Line 32 of IRS Form 1040. As tax laws are subject to change, the contribution may be entered on a different line in the future.
If your IRA contribution was your only income adjustment, enter the same number on Line 36.
Subtract the amount on Line 36 from your total income and enter the number on line 37. This figure is your adjusted gross income. Your AGI will be lowered by the the amount you contributed to your traditional IRA; thus lowering your tax liability.
Complete the balance of your tax forms as required and file them by the deadline.
Tips & Warnings
- For additional information on setting up a traditional IRA, including deduction limits, you may wish to obtain a copy of IRS Publication 590.
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