I am trying to figure out the Roth IRA for tax purpose. Is there anyone who can give me understanding for a 1040 tax return. I found that non deductible contributions and deductible contributions make a difference with Roth IRA contributions, in any case will any of these contributions be reported on a 1040 tax return. I also know that the custodian is responsible for repoting non-deductible roth ira contributions to the irs. Please explain in as much detail as possible, thanks in advance.
There's no such thing as deductible contributions to a Roth IRA. Only regular IRAs allow you to deduct contributions, if you're not covered by a retirement plan at work or your income is below a certain amount.
Are you actually concerned with converting a regular IRA to Roth? In that case, the amount of deductible contributions to the original IRA affects the tax you pay during the conversion -- it's taxed similarly to withdrawing from the IRA, except there's no penalty for early withdrawal.
Just follow all the instructions for Form 8606 and the right thing should happen.
Strange I used to work for a brokerage firm, I should know a little. Besides is it safe to assume that the IRS assumes that all Roth IRA contributions are pre-taxed or am I in a galaxy far far away? How are Roth IRA contributions made? Where does the contributions have to come from (are there regulations) and are the contributions ever taxed on a Roth Ira(if so when and how in basis)?
Traditional IRA's, is the contributions taxed twice if you contribute income from your net income (job)? I need better understandings of these things I will appreciate any one's help again, thanks in advance.
Contributions to a traditional IRA are deductible in arriving at adjusted gross income in the year in which the contribution is made -- i.e., they come from pre-tax income. The amount that may be contributed and deducted is limited, and an individual who is covered by an employer retirement plan or has income above a certain level may not contribute to a traditional IRA. When you withdraw funds from a traditional IRA, usually every dollar you withdraw is taxable as ordinary income. After the taxpayer reaches age 70-1/2, a specified minimum amount (the "required minimum distribution," or RMD) must be withdrawn and included in taxable income each year. Any balance remaining in an IRA at the taxpayer's death is taxable income ("income in respect of the decedent") to the heirs.
A Roth IRA is a special kind of IRA that can receive nondeductible contributions and, if certain conditions are met, all distributions from a Roth IRA are tax-free. There are no RMDs, so funds may be left in a Roth IRA and the taxpayer's heirs may inherit the account without recognizing taxable income.
You can convert a traditional IRA to a Roth IRA by rolling the funds over. The amount rolled into the Roth account is taxable income; however, the income and tax liability may be spread over 4 years (it will be 2 years after 2011).
These are just the general principles. There are a lot of details. Consult a professional tax adviser before deciding whether you can or should contribute to a traditional or Roth IRA, or whether you should roll a traditional into a Roth.
Why? Every brokerage has fine print saying "Don't rely on us for tax advice." That's because at least their lawyers know they don't know enough, even if the person you draw on their 800 number thinks he does.
No, you're not in another galaxy, which, along with the fact that you have access to a computer, means you can mosey over to
formatting link
and get a copy of IRS Publication 590, which has answers to all your questions. If something remains unclear after you do your homework, please provide a Pub
590 reference.
The "whys" are because of the law, in most cases sections 408 and 408A of the Internal Revenue Code, and the regulations in connection with them.
Katie, I had to double check because your replies are usually very thorough and authoritative...but I'm pretty sure you cannot spread the tax effects of tradition-to-Roth conversion over four years, it must be reported and taxed all in one year.
As law stands now, conversions in 2010 will not be subject to restrictions such as MFS filing status and high AGI, and the tax liability will be spreadable over two years...but none of that is true now.
You are correct. The 4-year spread was one-time only, in 1998.
An amplification since the 2010 "spread" will work differently than the 1998 spread. For conversions done in 2010 only, the income will be split 50/50 between 2011 and 2012 unless the taxpayer elects to recognize all the income in 2010 [sic all those years].
The elimination of income and filing status restrictions in 2010 is permanent, but the spread is 2010 only.
That is, if the provision survives until 2010. There are some (I see a hand waving in the mirror) who think it doesn't have a prayer.
I want to clarify this, so if I took my pre taxed income and contributed it to a IRA account then the current year tax return I would record the IRA contributions as income and then take the deduction for the whole amount contributed to reduce it to zero? Do you know what the limits are to contribute to an IRA I think $4000 a year and what are the limits to the deduction I assume less than $4000?
========================================= MODERATOR'S COMMENT: Please delete all unnecessary material from the prior message when responding.
Only in 1998 was a 4 year spread permitted. That was the first year a Roth-IRA existed. Except for 2010 (if not changed), a conversion is taxed ONLY in the year it occurs.
You're talking about a traditional IRA here, not a Roth. You have until April 15 to establish an IRA account and made a contribution to it that will be deductible on your 2007 income tax return. You can contribute and deduct $4,000; however, if you or your spouse is an active participant in an employer pension plan, the amount that can be contributed and deducted is reduced (phases out) at higher income levels.
If you want to do this you need to see a tax pro right away -- who may not be thrilled to talk to you at this late date in the filing season.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.