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Determining your retirement plan contributions and when elderly parent qualifies as dependent

Making 2017 retirement plan contributions in 2018

The clock is ticking down to the tax filing deadline. "The good news is that you still may be able to save on your impending 2017 tax bill by making contributions to certain retirement plans."

For example, if one qualifies, they can make a deductible contribution to a traditional IRA right up until the April 17, 2018, filing date and still benefit from the resulting tax savings on their 2017 return. They also have until April 17 to make a contribution to a Roth IRA.

And if someone happens to be a small business owner, they can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for their company's tax return, including extensions.

Deadlines and limits

Let's look at some specifics. For IRA and Roth IRA contributions, the maximum regular contribution is $5,500. Plus, if someone were at least age 50 on Dec. 31, 2017, they are eligible for an additional $1,000 "catch-up" contribution.

There are also age limits. A person must have been under age 70 1/2 on Dec. 31, 2017, to contribute to a traditional IRA. Contributions to a Roth can be made regardless of age, if the person meets the other requirements.

For a SEP, the maximum contribution is $54,000, and must be made by the April 17 date, or by the extended due date (up to Monday, Oct. 15, 2018) if the person files a valid extension. (There's no SEP catch-up amount.)

Phase-out ranges

If not covered by an employer's retirement plan, a persons contributions to a traditional IRA are not affected by their modified adjusted gross income (MAGI). Otherwise, when they (or a spouse, if married) are active in an employer's plan, available contributions begin to phase out within certain MAGI ranges.

For married couples filing jointly, the MAGI range is $99,000 to $119,000. For singles or heads of household, it's $62,000 to $72,000. For those married but filing separately, the MAGI range is $0 to $10,000, if they lived with their spouse at any time during the year. A phase-out occurs between AGI of $186,000 and $196,000 if a spouse participates in an employer-sponsored plan.

Contributions to Roth IRAs phase out at mostly different ranges. For married couples filing jointly, the MAGI range is $186,000 to $196,000. For singles or heads of household, it's $118,000 to $133,000. But for those married but filing separately, the phase-out range is the same: $0 to $10,000, if they lived with their spouse at any time during the year.

Essential security

Saving for retirement is essential for financial security. What's more, the federal government provides tax incentives for doing so. Best of all, as mentioned, a person still has time to contribute to an IRA, Roth IRA or SEP plan for the 2017 tax year. Please contact Prince & Tuohey CPA Ltd. for further details and a personalized approach to determining how to best contribute to your retirement plan or plans.

When elderly parent might qualify as your dependent

It's not uncommon for adult children to help support their aging parents. If someone is in this position, they might qualify for an adult-dependent exemption to deduct up to $4,050 for each person claimed on their 2017 return.

Basic qualifications

For a person to qualify for the adult-dependent exemption, in most cases the parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if the parent is permanently and totally disabled.) Social Security is generally excluded, but payments from dividends, interest and retirement plans are included.

In addition, a person must have contributed more than 50 percent of their parent's financial support. If the person shared caregiving duties with one or more siblings and their combined support exceeded 50 percent, the exemption can be claimed, even though no one individually provided more than 50 percent. However, only one of them can claim the exemption in this situation.

Important factors

Although Social Security payments can usually be excluded from the adult dependent's income, they can still affect a person's ability to qualify. Why? If the parent is using Social Security money to pay for medicine or other expenses, the person may find that they aren't meeting the 50 percent test.

Also, "if your parent lives with you, the amount of support you claim under the 50 percent test can include the fair market rental value of part of your residence." If the parent lives elsewhere -- in his or her own residence or in an assisted-living facility or nursing home -- any amount of financial support a person contributes to that housing expense counts toward the 50 percent test.

Easing the burden

An adult-dependent exemption is just one tax break that a person may be able to employ on their 2017 tax return to ease the burden of caring for an elderly parent. Contact Prince & Tuohey CPA for more information on qualifying for this break or others.

Prince & Tuohey CPA Ltd. is located at 2836 Malvern Ave. Suite D, Hot Springs, AR 71901. Call 501-262-5500 or visit website http://www.princetuohey.com for more information.

Business on 02/12/2018

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