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Publication 517

Retirement Savings Arrangements(p11)

Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. You generally can deduct your contributions to the plan. Your contributions and the earnings on them are not taxed until they are distributed.

Retirement plans for the self-employed.(p12)

To set up one of the following plans you must be self-employed.
The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax.
For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. You are not a self-employed person for purposes of setting up a retirement plan. This result is true even if your salary is subject to SE tax.
On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes.
For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

Individual retirement arrangements (IRAs).(p12)

The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Generally, your maximum contribution for 2014 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older by the end of 2014).
However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed.
If you contribute to a traditional IRA, your contribution may be deductible. However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan).
For more information on IRAs, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

Tax-sheltered annuity plans.(p12)

Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. For more information, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations.
Deducting contributions to tax-sheltered annuity plans.(p12)
If you are an employee, your employer may exclude allowable contributions to a 403(b) plan from your income. These contributions will not be included in your total wages on your Form W-2, but you will pay tax on distributions from your plan. However, if you choose to have contributions made to a Roth contribution program, they will not be excluded from your income, but will be distributed tax free.
You may also participate in a 403(b) plan if you are a minister or chaplain and, in the exercise of your ministry, you are either self-employed or employed by an organization that is not exempt from tax under section 501(c)(3) of the Internal Revenue Code. If either situation applies to you, you can deduct your contributions to a 403(b) plan as explained next.

Retirement savings contributions credit.(p12)

You may be able to take a tax credit of up to $1,000 (up to $2,000 if filing jointly) for certain contributions you make to any of the retirement plans or IRAs discussed earlier. The credit is based on the contributions you make and your credit rate. Your credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income. Figure the credit on Form 8880, Credit for Qualified Retirement Savings Contributions.
You cannot take the credit if any of the following apply.
  1. You were born after January 1, 1997.
  2. You were a student who during any part of 5 calendar months (not necessarily consecutive) of 2014:
    1. Was enrolled as a full-time student at a school, or
    2. Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
  3. Someone, such as your parent(s), claims an exemption for you on his or her 2014 tax return.
  4. Your adjusted gross income for 2014 is more than:
    1. $60,000, if your filing status is married filing jointly,
    2. $45,000, if your filing status is head of household, or
    3. $30,000, if your filing status is single, married filing separately, or qualifying widow(er) with dependent child.
Full-time student.(p13)
You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full time.
Adjusted gross income.(p13)
When figuring adjusted gross income, you must add back any exclusion or deduction claimed for the year for:
  1. Foreign earned income,
  2. Foreign housing costs,
  3. Income of bona fide residents of American Samoa, and
  4. Income of bona fide residents of Puerto Rico.
More information.(p13)
For more information about the credit, see Publication 590-A.