IRA contribution?

Question

If I contributed money to the IRA account and then found that I am not qualified for IRA tax deduction, what should I do? If I just leave the money there, will I be double taxed when I distribute the money when I retire?

Answer 1

I assume you are qualified to contribute to an IRA, meaning you had earned income. You can contribute to a traditional IRA up to $4000 ($5000 if over 50 of income) or your earned income, whichever is less.

Your deduction may be limited if your income was over the limit and you were covered by an employer plan. If this is your situation, you can

1. Leave it alone and file form 8606 documenting the part of your contribution which is not deductible. This prevents you from being taxed on that part of your contribution that has already been taxed.

2. Withdraw any nondeductible amounts from the IRA before the due date (including extensions) of your return.

3. If you are excluded from a traditional IRA deduction but can still contribute to a Roth, you can move your nondeductible contribution and its earnings to a Roth IRA by a recharacterization. This must be done before the due date of the return (including extensions). Your financial institution will have the forms.

None of the options 1 - 3 involve any additional tax or penalty.

If you had excess contributions, such as if you contributed more than your earned income, then you need to withdraw the excess before the due date (including extensions) of your return. You will pay tax and 10% penalty on the earnings of your excess contributions. If you leave excess contributions or their earnings in your account, they are subject to an additional 6% annual excise tax.

Answer 2

You may qualify to make a non-deductible IRA contribution. Check with your tax preparer. Then you can leave the money in the IRA account, although you will not be able to deduct it from your taxes.

Answer 3

You should take the money out before the due date of your tax return so that you wouldn't be penalized for contributing. The penalty is 6% of the excess contribution every year the excess remains in the account.

You should look to see if you can contribute to Roth IRA. Then at least you wouldn't pay taxes in the future for the earnings.

Best wishes.

Answer 4

All you ought to do is report an modification to re-do your tax return. verify you do no longer spend those 1600 via fact they are going to ask for them decrease back except that's a severe contribution on your ira via fact those are seen deductibles as properly. Dont panic amendments are widespread year around. As for contacting the IRS they gained't quite help in any respect. in basic terms amend them and don't complication. :) NO outcomes NO previous due costs! in basic terms verify you amend them earlier December! Thats while the IRS can get gruesome. _TAX PREPARER_