Modified AGI limit for traditional IRA contributions increased. For 2004, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is:

For all filing statuses other than married filing separately, the upper and lower limits of the phaseout range will increase by $5,000.

Increase in limit on salary reduction contributions under a SIMPLE. For 2004, salary reduction contributions that your employer can make on your behalf under a SIMPLE plan are increased to $9,000 (up from $8,000 in 2003).

Additional salary reduction contributions to SIMPLE IRAs for persons 50 and older. For 2004, additional salary reduction contributions can be made to your SIMPLE IRA if:

For 2004, the additional amount is the lesser of the following two amounts.

New method for figuring net income on returned or recharacterized IRA contributions. There is a new method for figuring the net income on IRA contributions made after 2003 that are returned to you or recharacterized. For more information, see How Do You Recharacterize a Contribution? or Contributions Returned Before Due Date of Return in IRS Publication 590. For figuring the net income on IRA contributions made during 2002 and 2003 that were returned to you or recharacterized, you can use the method described in this publication, the method permitted by Notice 2000–39, or the method in the proposed regulations.

Traditional IRA contribution and deduction limit. Unless you reached age 50 before 2004, the most that can be contributed to your traditional IRA for 2003 is the smaller of the following amounts:

If you reached age 50 before 2004, the most that can be contributed to your traditional IRA for 2003 is the smaller of the following amounts:

Credit for IRA contributions and salary reduction contributions. If you are an eligible individual, you may be able to claim a credit for a percentage of your qualified retirement savings contributions, such as contributions to your traditional or Roth IRA or salary reduction contributions to your SIMPLE. To be eligible, you must be at least 18 years old as of the end of the year, and you cannot be a student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount.

Rollovers of distributions from employer plans. You can roll over both the taxable and nontaxable part of a distribution from a qualified plan into a traditional IRA. If you have both deductible and nondeductible contributions in your IRA, you will have to keep track of your basis so you will be able to determine the taxable amount once distributions from the IRA begin.

Kinds of rollovers from a traditional IRA. You can roll over, tax free, a distribution from your traditional IRA into a qualified plan, including a deferred compensation plan of a state or local government (section 457 plan), and a tax-sheltered annuity plan (section 403(b) plan). The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Qualified plans may, but are not required to, accept such rollovers.

Rollovers of deferred compensation plans of state and local governments (section 457 plans) into traditional IRAs. If you participate in an eligible deferred compensation plan of a state or local government, you may be able to roll over part or all of your account tax free into an eligible retirement plan such as a traditional IRA. The most that you can roll over is the amount that qualifies as an eligible rollover distribution. The rollover may be either direct or indirect.

Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2003 generally is the lesser of:

If you were 50 or older in 2003 and contributions on your behalf are made only to Roth IRAs, your contribution limit for 2003 generally is the lesser of:

However, if your modified AGI is above a certain amount, your contribution limit may be reduced.

Contributions to both traditional and Roth IRAs for same year. If contributions are made on your behalf to both a Roth IRA and a traditional IRA, your contribution limit for 2003 is the lesser of:

However, if your modified AGI is above a certain amount, your contribution limit may be reduced.

Rollovers from SIMPLE IRAs. You may be able to roll over tax free a distribution from your SIMPLE IRA to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan).

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.

Form 8606. If you make nondeductible contributions to a traditional IRA and you do not file Form 8606, Nondeductible IRAs, with your tax return, you may have to pay a $50 penalty.

Spousal IRAs. In the case of a married couple filing a joint return, up to $3,000, ($3,500 if 50 or older) can be contributed to IRAs (other than SIMPLE IRAs) on behalf of each spouse, even if one spouse has little or no compensation.

The term “50 or older” is used several times in this publication. It refers to an IRA owner who is age 50 or older by the end of the tax year.

Spouse covered by employer plan. If you are not covered by an employer retirement plan and you file a joint return, you may be able to deduct all of your contributions to a traditional IRA even if your spouse is covered by a plan.

Roth IRA. You cannot claim a deduction for any contributions to a Roth IRA. But, if you satisfy the requirements, all earnings are tax free and neither your nondeductible contributions nor any earnings on them are taxable when you withdraw them.