The IRS Deductions Blog

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Items on Amazon Right Now for Tax Deduction Ira Loss:

The Joy of Tax: Tax Preparation

Items on Amazon Right Now for Is Ira Deductible:

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Individual Retirement Accounts (IRAs): Issues and Proposed Expansion $0.99 Current law provides many incentives to promote saving. The goal of these provisions is to increase saving for special purposes such as education or retirement, and to increase national saving. Increased national saving can lead to faster wealth and capital accumulation, which can boost future national income.An increasingly important retirement saving vehicle is the individual retirement account …

Question: Need to report rollover from qualified plan other than on line 16a?

I received a 1099-R regarding a rollover from a qualified plan to a Traditional IRA. I have duly reported it on Line 16a of my 1040. My question is, do I adjust my basis in my Trad IRA for this amount, on my Form 8606? I have been filing a Form 8606 for three years now, since my Trad IRA contributions are non-deductible, and it is showing a cumulative basis each year. Is the rollover from the qualified plan irrelevant to the basis/Form 8606 calculation? (It would make sense since the qualified plan was pre-tax and all my Trad IRA have been post-tax and non-deductible….Ultimately, I am wondering how the IRS will sort it all out once I start taking actual distributions from this IRA but for now I need to know if it is just reported on line 16a.)

THANKS!

Answer: I researched this to try to get you a resource, but it really depends on the type of plan rolled over. The first link below is the instructions for form 8606, and the second link is the specific part that talks about how to treat rollovers.
I read it and it appears you need to treat the rollovers as a recharictarization and include it in the basis. Really, it just makes sense. You had a pretax plan, you’re rolling it over to an after tax plan and paying tax on it. That just adds to the basis.

Items on Amazon Right Now for Non Deductible Traditional Ira:

Pay tax on the ‘seed’ — not the harvest with Roth IRA

We have spent an unusually large amount of time recently reviewing and updating IRAs and other retirement accounts for clients.

Question: Non-deductible contributions to a regular IRA, do I pay taxes on them again upon withdrawal?

My income doesn’t allow me to contribute to a Roth IRA nor make deductible contributions to a regular IRA. So after funding my 401K I also make a contribution to my regular IRA. When I withdrawal from that in future years, do I have to again pay taxes on my original contributions?

Answer: No, but make sure you keep good records so you can tell which money is which if you mix them. I would keep them in their own account.

In 2010 they can be converted to a ROTH no matter what your income. Read publication 590 for the details at IRS.GOV.

Items on Amazon Right Now for Roth Ira Contributions Deductible:

Individual Retirement Accounts (IRAs): Issues and Proposed Expansion $0.99 Current law provides many incentives to promote saving. The goal of these provisions is to increase saving for special purposes such as education or retirement, and to increase national saving. Increased national saving can lead to faster wealth and capital accumulation, which can boost future national income.An increasingly important retirement saving vehicle is the individual retirement account …

The Nondeductible IRA Is a Bad Idea

NEW BERLIN, Ill. (TheStreet) — While many would tell you it can be a good idea to make nondeductible contributions to your traditional IRA, I believe it’s in the “bad idea” category. There are exceptions — a Roth conversion of the nondeductible IRA, for instance. But it’s almost always a bad idea, due primarily to the way tax law works for IRA and non-IRA money. It’s almost always a bad idea …

Joe Arsenault–401K Rollovers

Question: I owe Uncle Sam money this year in taxes. Is there anyway I can invest my money so I’ll have to pay less?

I just finished doing my taxes but unfortunately, this year I owe Uncle Sam a descent amount of money (more than 5K).

I have already maxed out my 401K and I am not eligible for IRA due to income limits. So what can I do before April 15th 2009 to reduce my tax bill for 2008?

I heard you can invest in tax-deffered Annuities and claim it as tax deduction. Is that allowed? Do I have any other options to keep my money legally?

Answer: It’s too late to reduce your taxable income for ‘08 – except for deductible contributions to a traditional IRA – but since you contribute to a 401k, you’re not eligible for deductible contributions. Note that you can still contribute to a traditional IRA with post-tax dollars, and your investment growth will be tax-deferred until you retire. You may even qualify for a Roth IRA but that too is post-tax dollars (not deductible).

You can invest in muni bonds or tax-deferred annuities, but neither of those options will reduce your taxable income, they will just give you an investment vehicle where your earnings are tax-deferred until withdrawal (like the traditional IRA mentioned above). These will have a lower investment return because of the tax benefits.

Your best bet going forward is to sit down with a good CPA or a solid investment advisor in December to plan out ways to maximize your deductions (for example, paying some Deductible Expenses like your mortgage and property taxes in December instead of January). Also, if you invest in mutual funds, you can often swap funds to a bond fund or a money market in the same family of funds at no cost, avoid the year-end cap gain distributions, and then move your money back after 31 days. Be careful, because if you move your money back within 30 days, the IRS considers that a “wash sale” and you’ll be considered as having held the investment the entire time.

Hope this helps!

Items on Amazon Right Now for Ira Tax Deduction Limits 2009:

Time to Get Ready for Taxes

This year’s filing season has a key difference worth noting. That’s the tax filing deadline.

Roth IRAs