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For use in preparing Returns Publication 590-A - Introductory MaterialWhat's New for 2021Modified AGI limit for traditional IRA contributions. For 2021, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
Modified AGI limit for certain married individuals. If you are married and your spouse is covered by a retirement plan at work and you aren’t, and you live with your spouse or file a joint return, your deduction is phased out if your modified AGI is more than $198,000 (up from $196,000 for 2020) but less than $208,000 (up from $206,000 for 2020). If your modified AGI is $208,000 or more, you can’t take a deduction for contributions to a traditional IRA. Modified AGI limit for Roth IRA contributions. For 2021, your Roth IRA contribution limit is reduced (phased out) in the following situations.
What’s New for 2022Modified AGI limit for traditional IRA contributions increased. For 2022, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
Modified AGI limit for certain married individuals increased. If you are married and your spouse is covered by a retirement plan at work and you aren’t, and you live with your spouse or file a joint return, your deduction is phased out if your modified AGI is more than $204,000 (up from $198,000 for 2021) but less than $214,000 (up from $208,000 for 2021). If your modified AGI is $214,000 or more, you can’t take a deduction for contributions to a traditional IRA. Modified AGI limit for Roth IRA contributions increased. For 2022, your Roth IRA contribution limit is reduced (phased out) in the following situations.
RemindersFuture developments. For the latest information about developments related to Pub. 590-A, such as legislation enacted after it was published, go to IRS.gov/Pub590A. Divorce or separation instruments after 2018. Amounts paid as alimony or separate maintenance payments under a divorce or separation instrument executed after 2018 won't be deductible by the payer. Such amounts also won't be includible in the income of the recipient. The same is true of alimony paid under a divorce or separation instrument executed before 2019 and modified after 2018, if the modification expressly states that the alimony isn't deductible to the payer or includible in the income of the recipient. For more information, see Pub. 504. Qualified disaster tax relief. Special rules provide for tax-favored withdrawals and repayments from certain retirement plans for taxpayers who suffered an economic loss as a result of a qualified disaster. A qualified disaster includes a major disaster that was declared by Presidential Declaration that is dated between January 1, 2020, and up to February 25, 2021. However, in order to qualify under the latest legislation, the major disaster must have an incident period beginning between December 28, 2019, and up to December 27, 2020. Also, a qualified disaster loss does not include any disaster which has been declared only by reason of COVID-19. See Form 8915-F, Qualified Disaster Retirement Plan Distributions and Repayments, for more information. Difficulty of care payments. You may be able to make additional nondeductible IRA contributions after December 20, 2019, if you received difficulty of care payments, which are a type of qualified foster care payment. For more information, see Difficulty of care payments, later. Maximum age for making traditional IRA contributions repealed. For tax years beginning after 2019, the rule that you are not able to make contributions to your traditional IRA for the year in which you reach age 70½ and all later years has been repealed. Required minimum distributions (RMDs). For distributions required to be made after 2019, the age for the required beginning date for mandatory distributions is changed to age 72 for taxpayers reaching age 70½ after December 31, 2019. Taxable non-tuition fellowship and stipend payments. For tax years beginning after 2019, taxable non-tuition fellowship and stipend payments are treated as taxable compensation for the purpose of IRA contributions. These will include any amounts included in your gross income and paid to you to aid you in the pursuit of graduate or postdoctoral study. For more information, see Wages, salaries, etc., later. IRAs and unrelated business income. An IRA is subject to tax on unrelated business income if it carries on an unrelated trade or business. An unrelated trade or business means any trade or business regularly carried on by the IRA or by a partnership of which it is a member. For more information, see Unrelated business income under What Acts Result in Penalties or Additional Taxes, later. IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it isn’t tax-exempt interest. Tax on your traditional IRA is generally deferred until you take a distribution. Don’t report this interest on your return as tax-exempt interest. For more information on tax-exempt interest, see the instructions for your tax return. Extended rollover period for qualified plan loan offsets in 2018 or later. For distributions made in tax years beginning after December 31, 2017, you have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to roll over a qualified plan loan offset amount. For more information, see Time Limit for Making a Rollover Contribution in chapter 1. No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA. For more information, see Recharacterizations in chapter 1. Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. IntroductionThis publication discusses contributions to individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. For information about distributions (including rollovers) from an IRA, see Pub. 590-B. What are some tax advantages of an IRA? Two tax advantages of an IRA are that:
What's in this publication? This publication discusses contributions to traditional and Roth IRAs. It explains the rules for:
It also explains the penalties and additional taxes that apply when the rules aren’t followed. To assist you in complying with the tax rules for IRAs, this publication contains worksheets and sample forms which can be found throughout the publication and in the appendices at the back of the publication. How to use this publication. The rules that you must follow depend on which type of IRA you have. Use Table I-1 to help you determine which parts of this publication to read. Also use Table I-1 if you were referred to this publication from instructions to a form. Comments and suggestions. We welcome your comments about this publication and suggestions for future editions. You can send us comments through IRS.gov/FormComments. Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Don’t send tax questions, tax returns, or payments to the above address. Getting answers to your tax questions. If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/Help/ITA where you can find topics by using the search feature or viewing the categories listed. Getting tax forms, instructions, and publications. Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications. Ordering tax forms, instructions, and publications. Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Don’t resubmit requests you’ve already sent us. You can get forms and publications faster online. Useful ItemsYou may want to see: Publications
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See How To Get Tax Help for information about getting these publications and forms.
Table I-1. Using This Publication
Table I-2. How Are a Traditional IRA and a Roth IRA Different?
1. Traditional IRAsIntroductionThis chapter discusses the original IRA. In this publication, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA.” A traditional IRA is any IRA that isn’t a Roth IRA or a SIMPLE IRA. The following are two advantages of a traditional IRA.
Who Can Open a Traditional IRA?You can open and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year. You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. See How Much Can You Deduct, later. . For tax years beginning after December 31, 2019, the rule that you are not able to make contributions to your traditional IRA for the year in which you reach age 70½ and all later years has been repealed..Both spouses have compensation. If both you and your spouse have compensation, each of you can open an IRA. You can’t both participate in the same IRA. If you file a joint return, only one of you needs to have compensation. What Is Compensation?Generally, compensation is what you earn from working. For a summary of what compensation does and doesn’t include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type). Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). A scholarship or fellowship is generally taxable compensation only if it is in box 1 of your Form W-2. However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These amounts include taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in chapter 1 of Pub. 970, Tax Benefits for Education. Commissions. An amount you receive that is a percentage of profits or sales price is compensation. Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:
Compensation includes earnings from self-employment even if they aren’t subject to self-employment tax because of your religious beliefs. Self-employment loss. If you have a net loss from self-employment, don’t subtract the loss from your salaries or wages when figuring your total compensation. Alimony and separate maintenance. For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance but only with respect to divorce or separation instruments executed on or before December 31, 2018, that have not been modified to exclude such amounts. Nontaxable combat pay. If you were a member of the U.S. Armed Forces, compensation includes any nontaxable combat pay you received. This amount should be reported in box 12 of your 2021 Form W-2 with code Q. Graduate or postdoctoral study. A scholarship or fellowship is generally taxable compensation only if it is in box 1 of your Form W-2, Wage and Tax Statement. However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These amounts include taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in chapter 1 of Pub. 970, Tax Benefits for Education. Table 1-1. Compensation for Purposes of an IRA
What Isn’t Compensation?Compensation doesn’t include any of the following items.
When Can a Traditional IRA Be Opened?You can open a traditional IRA at any time. However, the time for making contributions for any year is limited. See When Can Contributions Be Made, later. How Can a Traditional IRA Be Opened?You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements. The requirements for the various arrangements are discussed below. Kinds of traditional IRAs. Your traditional IRA can be an individual retirement account or annuity. It can be part of either a SEP or an employer or employee association trust account. Individual Retirement AccountAn individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. The document must show that the account meets all of the following requirements.
Individual Retirement AnnuityYou can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. An individual retirement annuity must meet all the following requirements.
Individual Retirement BondsThe sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. The bonds have the following features.
If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. See Pub. 590-B for more information about the age 59½ rule for early distributions and other distribution rules. You can roll over redemption proceeds into IRAs. SIMPLE IRAsA SIMPLE IRA plan is a tax-favored retirement plan that certain small employers (including self-employed employees) can set up for the benefit of their employees. Your participation in your employer's SIMPLE IRA plan doesn’t prevent you from making contributions to a traditional or Roth IRA. See Pub. 560 for more information about SIMPLE IRAs. Simplified Employee Pension (SEP)A SEP is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. See Pub. 560 for more information about SEPs. Employer and Employee Association Trust AccountsYour employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. The requirements for individual retirement accounts apply to these traditional IRAs. Required DisclosuresThe trustee or issuer (sometimes called the sponsor) of your traditional IRA must generally give you a disclosure statement at least 7 days before you open your IRA. However, the sponsor doesn’t have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. The disclosure statement must explain certain items in plain language. For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. This explanation must appear at the beginning of the disclosure statement. If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. These requirements apply to all sponsors. How Much Can Be Contributed?There are limits and other rules that affect the amount that can be contributed to a traditional IRA. These limits and rules are explained below. Community property laws. Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit, each spouse figures his or her limit separately, using his or her own compensation. This is the rule even in states with community property laws. Brokers' commissions. Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. For information about whether you can deduct brokers' commissions, see Brokers' commissions, later, under How Much Can You Deduct. Trustees' fees. Trustees' administrative fees aren’t subject to the contribution limit. For information about whether you can deduct trustees' fees, see Trustees' fees, later, under How Much Can You Deduct. Qualified reservist repayments. If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined under Early Distributions in Pub. 590-B) you received. You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. See Early Distributions in Pub. 590-B for more information on qualified reservist distributions. Limit. Your qualified reservist repayments can’t be more than your qualified reservist distributions. When repayment contributions can be made. You can’t make these repayment contributions later than the date that is 2 years after your active duty period ends. No deduction. You can’t deduct qualified reservist repayments. Reserve component. The term “reserve component” means the:
Figuring your IRA deduction. The repayment of qualified reservist distributions doesn’t affect the amount you can deduct as an IRA contribution. Reporting the repayment. If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Example. In 2021, your IRA contribution limit is $6,000. However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. You can make a nondeductible contribution of $2,500 ($6,000 – $3,500). In an earlier year, you received a $3,000 qualified reservist distribution, which you would like to repay this year. For 2021, you can contribute a total of $9,000 to your IRA. This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,500; and a $3,000 qualified reservist repayment. You contribute the maximum allowable for the year. Since you are making a nondeductible contribution ($2,500) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,500 ($2,500 + $3,000) on line 1 of Form 8606. The qualified reservist repayment isn’t deductible. . Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. See chapter 2 for information about Roth IRAs..General LimitFor 2021, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts.
Note.This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. (See Nondeductible Contributions, later.) Qualified reservist repayments don’t affect this limit. Examples. George, who is 34 years old and single, earns $24,000 in 2021. His IRA contributions for 2021 are limited to $6,000. Danny, an unmarried college student working part time, earns $3,500 in 2021. His IRA contributions for 2021 are limited to $3,500, the amount of his compensation. More than one IRA. If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. Annuity or endowment contracts. If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $6,000 ($7,000 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. If more than this amount is contributed, the annuity or endowment contract is disqualified. Kay Bailey Hutchison Spousal IRA LimitFor 2021, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts.
This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $12,000 ($13,000 if only one of you is age 50 or older, or $14,000 if both of you are age 50 or older). Note.This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Example. Kristin, a full-time student with no taxable compensation, marries Carl during the year. Neither of them was age 50 by the end of 2021. For the year, Carl has taxable compensation of $30,000. He plans to contribute (and deduct) $6,000 to a traditional IRA. If he and Kristin file a joint return, each can contribute $6,000 to a traditional IRA. This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $6,000 = $24,000), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. In her case, $6,000 is her contribution limit, because $6,000 is less than $24,000 (her compensation for purposes of figuring her contribution limit). Filing StatusGenerally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit, your filing status has no effect on the amount of allowable contributions to your traditional IRA. However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. See How Much Can You Deduct, later. Example. Tom and Darcy are married and both are 53. They both work and each has a traditional IRA. Tom earned $3,800 and Darcy earned $48,000 in 2021. Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $7,000, they can contribute up to $7,000 to his IRA for 2021 if they file a joint return. They can contribute up to $7,000 to Darcy's IRA. If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Less Than Maximum ContributionsIf contributions to your traditional IRA for a year were less than the limit, you can’t contribute more after the due date of your return for that year to make up the difference. Example. Rafael, who is 40, earns $30,000 in 2021. Although he can contribute up to $6,000 for 2021, he contributes only $3,000. After April 18, 2022, Rafael can’t make up the difference between his actual contributions for 2021 ($3,000) and his 2021 limit ($6,000). He can’t contribute $3,000 more than the limit for any later year. More Than Maximum ContributionsIf contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. However, a penalty or additional tax may apply. See Excess Contributions, later, under What Acts Result in Penalties or Additional Taxes. When Can Contributions Be Made?As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Contributions must be in the form of money (cash, check, or money order). Property can’t be contributed. Although property can’t be contributed, your IRA may invest in certain property. For example, your IRA may purchase shares of stock. For other restrictions on the use of funds in your IRA, see Prohibited Transactions, later in this chapter. You may be able to transfer or roll over certain property from one retirement plan to another. See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets. . You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. For details, see the instructions for your income tax return or Form 8888, Allocation of Refund..Contributions can be made to your traditional IRA for each year that you receive compensation. For any year in which you don’t work, contributions can’t be made to your IRA unless you receive taxable alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. See Who Can Open a Traditional IRA, earlier. Even if contributions can’t be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. Contributions can resume for any years that you qualify. Contributions must be made by due date. Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means that contributions for 2021 must be made by April 18, 2022. . For tax years beginning after 2019, the rule that you are not able to make contributions to your traditional IRA for the year in which you reach age 70½ and all later years has been repealed..Designating year for which contribution is made. If an amount is contributed to your traditional IRA between January 1 and April 15 (April 18 for 2022), you should tell the sponsor which year (the current year or the previous year) the contribution is for. If you don’t tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Filing before a contribution is made. You can file your return claiming a traditional IRA contribution before the contribution is actually made. Generally, the contribution must be made by the due date of your return, not including extensions. Contributions not required. You don’t have to contribute to your traditional IRA for every tax year, even if you can. How Much Can You Deduct?Generally, you can deduct the lesser of:
However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. See Limit if Covered by Employer Plan, later. . You may be able to claim a credit for contributions to your traditional IRA. For more information, see chapter 3..Trustees' fees. Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA aren’t deductible as IRA contributions. You are also not able to deduct these fees as an itemized deduction. Brokers' commissions. These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Full deduction. If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of:
This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Kay Bailey Hutchison Spousal IRA. In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of:
This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Note.If you were divorced or legally separated (and didn’t remarry) before the end of the year, you can’t deduct any contributions to your spouse's IRA. After a divorce or legal separation, you can deduct only the contributions to your own IRA. Your deductions are subject to the rules for single individuals. Covered by an employer retirement plan. If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. This is discussed later under Limit if Covered by Employer Plan. Limits on the amount you can deduct don’t affect the amount that can be contributed. Are You Covered by an Employer Plan?The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The “Retirement plan” box should be checked if you were covered. Reservists and volunteer firefighters should also see Situations in Which You Aren’t Covered, later. If you aren’t certain whether you were covered by your employer's retirement plan, you should ask your employer. Federal judges. For purposes of the IRA deduction, federal judges are covered by an employer plan. For Which Year(s) Are You Covered?Special rules apply to determine the tax years for which you are covered by an employer plan. These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Tax year. Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. For almost all people, the tax year is the calendar year. Defined contribution plan. Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. However, also see Situations in Which You Aren’t Covered, later. A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Example. Company A has a money purchase pension plan. Its plan year is from July 1 to June 30. The plan provides that contributions must be allocated as of June 30. Bob, an employee, leaves Company A on December 31, 2020. The contribution for the plan year ending on June 30, 2021, is made February 15, 2022. Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2021 tax year. A special rule applies to certain plans in which it isn’t possible to determine if an amount will be contributed to your account for a given plan year. If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you aren’t covered for the tax year in which the plan year ends. If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Example. Mickey was covered by a profit-sharing plan and left the company on December 31, 2020. The plan year runs from July 1 to June 30. Under the terms of the plan, employer contributions don’t have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. As of June 30, 2021, no contributions were made that were allocated to the June 30, 2021, plan year, and no forfeitures had been allocated within the plan year. In addition, as of that date, the company wasn’t obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. On December 31, 2021, the company decided to contribute to the plan for the plan year ending June 30, 2021. That contribution was made on February 15, 2022. Mickey is an active participant in the plan for his 2022 tax year but not for his 2021 tax year. No vested interest. If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. Defined benefit plan. If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you:
A defined benefit plan is any plan that isn’t a defined contribution plan. In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Defined benefit plans include pension plans and annuity plans. Example. Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. Nick leaves Company B on December 31, 2020. Because Nick is eligible to participate in the plan for its year ending June 30, 2021, he is covered by the plan for his 2021 tax year. No vested interest. If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Situations in Which You Aren’t CoveredUnless you are covered by another employer plan, you aren’t covered by an employer plan if you are in one of the situations described below. Social security or railroad retirement. Coverage under social security or railroad retirement isn’t coverage under an employer retirement plan. Benefits from previous employer's plan. If you receive retirement benefits from a previous employer's plan, you aren’t covered by that plan. Reservists. If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. You aren’t covered by the plan if both of the following conditions are met.
Volunteer firefighters. If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. You aren’t covered by the plan if both of the following conditions are met.
Limit if Covered by Employer PlanAs discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. Your deduction is also affected by how much income you had and by your filing status. Your deduction may also be affected by social security benefits you received. Reduced or no deduction. If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These amounts vary depending on your filing status. To determine if your deduction is subject to the phaseout, you must determine your modified AGI and your filing status, as explained later under Deduction Phaseout. Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. Social Security RecipientsInstead of using Table 1-2 or Table 1-3 and Worksheet 1-2, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply.
Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Appendix B includes an example with filled-in worksheets to assist you. Table 1-2. Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work
Deduction PhaseoutThe amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. Covered by a retirement plan. If you are covered by an employer retirement plan and you didn’t receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. If your spouse is covered. If you aren’t covered by an employer retirement plan, but your spouse is, and you didn’t receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. Filing status. Your filing status depends primarily on your marital status. For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. If you need more information on filing status, see Pub. 501, Exemptions, Standard Deduction, and Filing Information. Lived apart from spouse. If you didn’t live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Modified adjusted gross income (AGI). You can use Worksheet 1-1 to figure your modified AGI. If you made contributions to your IRA for 2021 and received a distribution from your IRA in 2021, see Both contributions for 2021 and distributions in 2021, later. .Don’t assume that your modified AGI is the same as your compensation. Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. . Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, refigure the amount on line 11, the “adjusted gross income” line, without taking into account any of the following amounts.
This is your modified AGI. Form 1040-NR. If you file Form 1040-NR, refigure the amount on line 11, the “adjusted gross income” line, without taking into account any of the following amounts.
This is your modified AGI. Income from IRA distributions. If you received distributions in 2021 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, your distributions are fully taxable and are included in your modified AGI. See Pub. 590-B for more information on distributions. Both contributions for 2021 and distributions in 2021. If all three of the following apply, any IRA distributions you received in 2021 may be partly tax free and partly taxable.
If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. To do this, you can use Worksheet 1-1 in Pub. 590-B. If at least one of the above doesn’t apply, figure your modified AGI using Worksheet 1-1. How To Figure Your Reduced IRA DeductionIf you or your spouse is covered by an employer retirement plan and you didn’t receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. The Instructions for Form 1040 include a similar worksheet that you can use instead of the worksheet in this publication. If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients, earlier. Note.If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Worksheet 1-1. Figuring Your Modified AGI
Reporting Deductible ContributionsIf you file Schedule 1 (Form 1040), enter your IRA deduction on line 20 of that form. Self-employed. If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Schedule 1 (Form 1040), line 16. Nondeductible ContributionsAlthough your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Example. Tony is 29 years old and single. In 2021, he was covered by a retirement plan at work. His salary is $72,000. His modified AGI is $90,000. Tony makes a $6,000 IRA contribution for 2021. Because he was covered by a retirement plan and his modified AGI is above $76,000, he can’t deduct his $6,000 IRA contribution. He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Difficulty of care payments. For contributions after December 20, 2019, you are able to elect to increase the nondeductible IRA contribution limit by some or all of the amount of difficulty of care payments, which are a type of qualified foster care payment, received. If you receive difficulty of care payments, then those amounts may increase the amount of nondeductible IRA contributions you can make but not above the $6,000 IRA deductible amount ($7,000 if you are age 50 or older). The increase to the nondeductible IRA contribution limit equals the lesser of (i) the amount of difficulty of care payments excluded from gross income, or (ii) the amount by which the deductible limit for IRA contributions exceeds the amount of the taxpayer's compensation included in gross income for the tax year. Form 8606. To designate contributions as nondeductible, you must file Form 8606. You don’t have to designate a contribution as nondeductible until you file your tax return. When you file, you can even designate otherwise deductible contributions as nondeductible contributions. You must file Form 8606 to report nondeductible contributions even if you don’t have to file a tax return for the year. .A Form 8606 isn’t used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. See Form 8606 under Distributions Fully or Partly Taxable in Pub. 590-B.. Failure to report nondeductible contributions. If you don’t report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Penalty for overstatement. If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Penalty for failure to file Form 8606. You will have to pay a $50 penalty if you don’t file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Tax on earnings on nondeductible contributions. As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Cost basis. You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. .Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. See Pub. 590-B for more information on distributions.. . Recordkeeping. There is a recordkeeping worksheet, Appendix A. Summary Record of Traditional IRA(s) for 2021, that you can use to keep a record of deductible and nondeductible IRA contributions. .Examples—Worksheet for Reduced IRA Deduction for 2021The following examples illustrate the use of Worksheet 1-2. Example 1. For 2021, Tom and Betty file a joint return on Form 1040. They are both 39 years old. They are both employed. Tom is covered by his employer's retirement plan. However, Betty isn’t covered by her employer's retirement plan. Tom's salary is $62,000, and Betty's is $34,500. They each have a traditional IRA and their combined modified AGI, which includes $9,000 interest and dividend income, is $105,500. Because their modified AGI is between $105,000 and $125,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan. For 2021, Tom contributed $6,000 to his IRA, and Betty contributed $6,000 to hers. Even though they file a joint return, they must figure their IRA deductions separately. Tom can take a deduction of only $5,850. Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2021, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2021—Example 1 Illustrated. He can choose to treat the $5,850 as either deductible or nondeductible contributions. He can either leave the $150 ($6,000 − $5,850) of nondeductible contributions in his IRA or withdraw them by April 18, 2022. He decides to treat the $5,850 as deductible contributions and leave the $150 of nondeductible contributions in his IRA. Betty figures her IRA deduction as follows. Betty can treat all or part of her $6,000 contribution as either deductible or nondeductible. This is because she isn’t covered by her employer's retirement plan, and their combined modified AGI isn’t between $198,000 and $208,000. Therefore, she isn’t subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan, and she doesn’t need to use Worksheet 1-2. Betty decides to treat her $6,000 IRA contribution as deductible. The IRA deductions of $5,850 and $6,000 on the joint return for Tom and Betty total $11,850. Example 2. For 2021, Ed and Sue file a joint return on Form 1040. They are both 39 years old. Ed is covered by his employer's retirement plan. Ed's salary is $45,000. Sue had no compensation for the year and didn’t contribute to an IRA. Sue isn’t covered by an employer plan. Ed contributed $6,000 to his traditional IRA and $6,000 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $200,555. Because their combined modified AGI is $125,000 or more and Ed is covered by his employer's plan, he can’t deduct any of the contribution to his traditional IRA. He can either leave the $6,000 of nondeductible contributions in his IRA or withdraw them by April 18, 2022. Sue figures her IRA deduction as shown on Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2021—Example 2 Illustrated. Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2021
Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2021—Example 1 Illustrated
Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2021—Example 2 Illustrated
What if You Inherit an IRA?If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Inherited From SpouseIf you inherit a traditional IRA from your spouse, you generally have the following three choices. You can do one of the following.
Treating it as your own. You will be considered to have chosen to treat the IRA as your own if:
You will only be considered to have chosen to treat the IRA as your own if:
However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution isn’t a required distribution, even if you aren’t the sole beneficiary of your deceased spouse's IRA. For more information, see When Must You Withdraw Assets? (Required Minimum Distributions) in Pub. 590-B for more information on required minimum distributions. Inherited From Someone Other Than SpouseIf you inherit a traditional IRA from anyone other than your deceased spouse, you can’t treat the inherited IRA as your own. This means that you can’t make any contributions to the IRA. It also means you can’t roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. See Pub. 590-B for more information. Like the original owner, you generally won’t owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries. More information. For more information about rollovers, required distributions, and inherited IRAs, see:
Can You Move Retirement Plan Assets?You can transfer, tax free, assets (money or property) from other retirement programs (including traditional IRAs) to a traditional IRA. You can make the following kinds of transfers.
This chapter discusses all three kinds of transfers. Transfers to Roth IRAs from other retirement plans. Under certain conditions, you can move assets from a qualified retirement plan to a Roth IRA. For more information, see Can You Move Amounts Into a Roth IRA? in chapter 2. Trustee-to-Trustee TransferA transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, isn’t a rollover. This includes the situation where the current trustee issues a check to the new trustee but gives it to you to deposit. Because there is no distribution to you, the transfer is tax free. Because it isn’t a rollover, it isn’t affected by the 1-year waiting period required between rollovers. This waiting period is discussed later under Rollover From One IRA Into Another. For information about direct transfers from retirement programs other than traditional IRAs, see Direct rollover option, later. RolloversGenerally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan within 60 days you received the payment or distribution. The contribution to the second retirement plan is called a “rollover contribution.” Note.An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Kinds of rollovers to a traditional IRA. You can roll over amounts from the following plans into a traditional IRA.
Also, see Table 1-4. Table 1-4. Rollover Chart
Rollover notice. A written explanation of rollover treatment must be given to you by the plan (other than an IRA) making the distribution. See Written explanation to recipients, later, for more details. Kinds of rollovers from a traditional IRA. You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. These plans include the Federal Thrift Savings Plan (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Qualified plans may, but aren’t required to, accept such rollovers. Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA. Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution couldn’t be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or don’t roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible. Eligible retirement plans. The following are considered eligible retirement plans.
Time Limit for Making a Rollover ContributionYou must generally make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Example. You received an eligible rollover distribution from your traditional IRA on June 30, 2021, that you intend to roll over to your 403(b) plan. To postpone including the distribution in your income, you must complete the rollover by August 29, 2021, the 60th day following June 30. The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. For exceptions to the 60-day period, see Ways to get a waiver of the 60-day rollover requirement, later. Plan loan offset. A plan loan offset is the amount your employer plan account balance is reduced, or offset, to repay a loan from the plan. How long you have to complete the rollover of a plan loan offset depends on what kind of plan loan offset you have. For tax years beginning after December 31, 2017, if you have a qualified plan loan offset, you will have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to complete your rollover. A qualified plan loan offset occurs when a plan loan in good standing is offset because your employer plan terminates, or because you sever from employment. If your plan loan offset occurs for any other reason, then you have 60 days from the date the offset occurs to complete your rollover. Rollovers completed after the 60-day period. In the absence of a waiver, amounts not rolled over within the 60-day period don’t qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer's plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed under Early Distributions in Pub. 590-B. Unless there is a waiver or an extension of the 60-day rollover period, any contribution you make to your IRA more than 60 days after the distribution is a regular contribution, not a rollover contribution. Example. You received a distribution in late December 2021 from a traditional IRA that you don’t roll over into another traditional IRA within the 60-day limit. You don’t qualify for a waiver. This distribution is taxable in 2021 even though the 60-day limit wasn’t up until 2022. Ways to get a waiver of the 60-day rollover requirement. There are three ways to obtain a waiver of the 60-day rollover requirement.
How do you qualify for an automatic waiver? You qualify for an automatic waiver if all of the following apply.
If you don’t qualify for an automatic waiver, you can use the self-certification procedure to make a late rollover contribution or you can apply to the IRS for a waiver of the 60- day rollover requirement. How do you self-certify that you qualify for a waiver? Pursuant to Revenue Procedure 2016-47 in Internal Revenue Bulletin 2016-37, available at IRB 2016-37, you may make a written certification to a plan administrator or an IRA trustee that you missed the 60-day rollover contribution deadline because of one or more of the 11 reasons listed in Revenue Procedure 2016-47. A plan administrator or an IRA trustee may rely on the certification in accepting and reporting receipt of the rollover contribution. You may make the certification by using the model letter in the appendix to the revenue procedure or by using a letter that is substantially similar. There is no IRS fee for self-certification. A copy of the certification should be kept in your files and be available if requested on audit. Note.A self-certification is not a waiver by the IRS of the 60-day rollover requirement. If the IRS subsequently audits your income tax return, it may determine that you do not qualify for a waiver, in which case you may owe additional taxes and penalties. How do you apply for a waiver and what is the fee? You can request a ruling according to the procedures outlined in Revenue Procedure 2003-16 and Revenue Procedure 2022-4. The appropriate user fee of $10,000 must accompany every request for a waiver of the 60-day rollover requirement (see the user fee chart in Appendix A of Revenue Procedure 2022-4). How does the IRS determine whether to grant a waiver in a private letter ruling? In determining whether to issue a favorable letter ruling granting a waiver, the IRS will consider all of the relevant facts and circumstances, including:
Note.The IRS can waive only the 60-day rollover requirement and not the other requirements for a valid rollover contribution. For example, the IRS can’t waive the IRA one-rollover-per-year rule. For more information on waivers of the 60-day rollover requirement, go to RetirementPlans-FAQs. Amount. The rules regarding the amount that can be rolled over within the 60-day time period also apply to the amount that can be deposited due to a waiver. For example, if you received $6,000 from your IRA, the most that you can deposit into an eligible retirement plan due to a waiver is $6,000. Extension of rollover period. If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, two special rules extend the rollover period.
Frozen deposit. This is any deposit that can’t be withdrawn from a financial institution because of either of the following reasons.
Rollover From One IRA Into AnotherYou can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Because this is a rollover, you can’t deduct the amount that you reinvest in an IRA. . You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. See Recharacterizations in this chapter for more information. .Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you can’t, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also can’t make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Rules apply to the number of rollovers you can have with your traditional IRAs. See Application of one-rollover-per-year limitation, later. Example. You have two traditional IRAs, IRA-1 and IRA-2. In 2021, you made a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You can’t, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. For 2021, the rollover from IRA-1 into IRA-3 prevents you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because in 2021 you are only allowed to make one rollover within a 1-year period. So when you make a rollover from IRA-1 to IRA-3, you can’t make a rollover from IRA-2 to any other traditional IRA. Exception. An IRA distribution made from a failed financial institution by the Federal Deposit Insurance Corporation as receiver is not treated as a rollover for purposes of the one-rollover-per-year limitation, provided:
Application of one-rollover-per-year limitation. You can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. The limit will apply by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. However, trustee-to-trustee transfers between IRAs aren’t limited and rollovers from traditional IRAs to Roth IRAs (conversions) aren’t limited. Example. John has three traditional IRAs: IRA-1, IRA-2, and IRA-3. John didn’t take any distributions from his IRAs in 2021. On January 1, 2022, John took a distribution from IRA-1 and rolled it over into IRA-2 on the same day. For 2022, John can’t roll over any other 2022 IRA distribution, including a rollover distribution involving IRA-3. This wouldn’t apply to a conversion. The same property must be rolled over. If property is distributed to you from an IRA and you complete the rollover by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you. Partial rollovers. If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). The amount you keep may be subject to the 10% additional tax on early distributions discussed later under What Acts Result in Penalties or Additional Taxes. Required distributions. Amounts that must be distributed during a particular year under the required distribution rules (discussed in Pub. 590-B) aren’t eligible for rollover treatment. Inherited IRAs. If you inherit a traditional IRA from your spouse, you can generally roll it over, or you can choose to make the inherited IRA your own as discussed earlier under What if You Inherit an IRA. Reporting rollovers from IRAs. Report any rollover from one traditional IRA to the same or another traditional IRA on Form 1040, 1040-SR, or 1040-NR, lines 4a and 4b. Enter the total amount of the distribution on Form 1040, 1040-SR, or 1040-NR, line 4a. If the total amount on Form 1040, 1040-SR, or 1040-NR, line 4a, was rolled over, enter zero on Form 1040, 1040-SR, or 1040-NR, line 4b. If the total distribution wasn't rolled over, enter the taxable portion of the part that wasn't rolled over on Form 1040, 1040-SR, or 1040-NR, line 4b. Enter "Rollover" next to line 4b. See your tax return instructions. If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2022, attach a statement explaining what you did. For information on how to figure the taxable portion, see Are Distributions Taxable? in Pub. 590-B. Rollover From Employer's Plan Into an IRAYou can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):
A qualified plan is one that meets the requirements of the Internal Revenue Code. Eligible rollover distribution. Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following.
Your rollover into a traditional IRA may include both amounts that would be taxable and amounts that wouldn’t be taxable if they were distributed to you, but not rolled over. To the extent the distribution is rolled over into a traditional IRA, it isn’t includible in your income. . Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. See Form 8606 under Distributions Fully or Partly Taxable in Pub. 590-B..Rollover by nonspouse beneficiary. If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a traditional IRA. You must make the rollover by a direct trustee-to-trustee transfer into an inherited IRA. You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. For more information, see Distributions after the employee's death under Tax on Excess Accumulation in Pub. 575. Written explanation to recipients. Before making an eligible rollover distribution, the administrator of a qualified retirement plan must provide you with a written explanation. It must tell you about all of the following.
The plan administrator must provide you with this written explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as both of the following requirements are met.
Contact the plan administrator if you have any questions regarding this information. Withholding requirement. Generally, if an eligible rollover distribution is paid directly to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to a traditional IRA. You can avoid withholding by choosing the direct rollover option, discussed later. Exceptions. The payer doesn’t have to withhold from an eligible rollover distribution paid to you if either of the following conditions applies.
. The amount withheld is part of the distribution. If you roll over less than the full amount of the distribution, you may have to include in your income the amount you don’t roll over. However, you can make up the amount withheld with funds from other sources..Other withholding rules. The 20% withholding requirement doesn’t apply to distributions that aren’t eligible rollover distributions. However, other withholding rules apply to these distributions. The rules that apply depend on whether the distribution is a periodic distribution or a nonperiodic distribution. For either of these types of distributions, you can still choose not to have tax withheld. For more information, see Pub. 575. Direct rollover option. Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a traditional IRA. The plan isn’t required to give you this option if your eligible rollover distributions are expected to total less than $200 for the year. Withholding. If you choose the direct rollover option, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the traditional IRA. If any part is paid to you, the payer must withhold 20% of that part's taxable amount. Choosing an option. Table 1-5 may help you decide which distribution option to choose. Carefully compare the effects of each option. Table 1-5. Comparison of Payment to You Versus Direct Rollover
. If you decide to roll over any part of a distribution, the direct rollover option will generally be to your advantage. This is because you won’t have 20% withholding or be subject to the 10% additional tax under that option. .If you have a lump-sum distribution and don’t plan to roll over any part of it, the distribution may be eligible for special tax treatment that could lower your tax for the distribution year. In that case, you may want to see Pub. 575 and Form 4972, Tax on Lump-Sum Distributions, and its instructions to determine whether your distribution qualifies for special tax treatment and, if so, to figure your tax under the special methods. You can then compare any advantages from using Form 4972 to figure your tax on the lump-sum distribution with any advantages from rolling over all or part of the distribution. However, if you roll over any part of the lump-sum distribution, you can’t use the Form 4972 special tax treatment for any part of the distribution. Contributions you made to your employer's plan. You can roll over a distribution of voluntary deductible employee contributions (DECs) you made to your employer's plan. Prior to January 1, 1987, employees could make and deduct these contributions to certain qualified employers' plans and government plans. These aren’t the same as an employee's elective contributions to a 401(k) plan, which aren’t deductible by the employee. If you receive a distribution from your employer's qualified plan of any part of the balance of your DECs and the earnings from them, you can roll over any part of the distribution. No waiting period between rollovers. The once-a-year limit on IRA-to-IRA rollovers doesn’t apply to eligible rollover distributions from an employer plan. You can roll over more than one distribution from the same employer plan within a year. IRA as a holding account (conduit IRA) for rollovers to other eligible plans. If you receive an eligible rollover distribution from your employer's plan, you can roll over part or all of it into one or more conduit IRAs. You can later roll over those assets into a new employer's plan. You can use a traditional IRA as a conduit IRA. You can roll over part or all of the conduit IRA to a qualified plan, even if you make regular contributions to it or add funds from sources other than your employer's plan. However, if you make regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move funds won’t be eligible for any optional tax treatment for which it might have otherwise qualified. Property and cash received in a distribution. If you receive both property and cash in an eligible rollover distribution, you can roll over part or all of the property, part or all of the cash, or any combination of the two that you choose. The same property (or sales proceeds) must be rolled over. If you receive property in an eligible rollover distribution from a qualified retirement plan, you can’t keep the property and contribute cash to a traditional IRA in place of the property. You must either roll over the property or sell it and roll over the proceeds, as explained next. Sale of property received in a distribution from a qualified plan. Instead of rolling over a distribution of property other than cash, you can sell all or part of the property and roll over the amount you receive from the sale (the proceeds) into a traditional IRA. You can’t keep the property and substitute your own funds for property you received. Example. You receive a total distribution from your employer's plan consisting of $10,000 cash and $15,000 worth of property. You decide to keep the property. You can roll over to a traditional IRA the $10,000 cash received, but you can’t roll over an additional $15,000 representing the value of the property you choose not to sell. Treatment of gain or loss. If you sell the distributed property and roll over all the proceeds into a traditional IRA, no gain or loss is recognized. The sale proceeds (including any increase in value) are treated as part of the distribution and aren’t included in your gross income. Example. On September 6, Mike received a lump-sum distribution from his employer's retirement plan of $50,000 in cash and $50,000 in stock. The stock wasn’t stock of his employer. On September 24, he sold the stock for $60,000. On October 6, he rolled over $110,000 in cash ($50,000 from the original distribution and $60,000 from the sale of stock). Mike doesn’t include the $10,000 gain from the sale of stock as part of his income because he rolled over the entire amount into a traditional IRA. Note.Special rules may apply to distributions of employer securities. For more information, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments in Pub. 575. Partial rollover. If you received both cash and property, or just property, but didn’t roll over the entire distribution, see Rollovers in Pub. 575. Life insurance contract. You can’t roll over a life insurance contract from a qualified plan into a traditional IRA. Distributions received by a surviving spouse. If you receive an eligible rollover distribution (defined earlier) from your deceased spouse's eligible retirement plan (defined earlier), you can roll over part or all of it into a traditional IRA. You can also roll over all or any part of a distribution of DECs. Distributions under divorce or similar proceedings (alternate payees). If you are the spouse or former spouse of an employee and you receive a distribution from a qualified retirement plan as a result of divorce or similar proceedings, you may be able to roll over all or part of it into a traditional IRA. To qualify, the distribution must be:
Qualified domestic relations order. A domestic relations order is a judgment, decree, or order (including approval of a property settlement agreement) that is issued under the domestic relations law of a state. A “qualified domestic relations order” gives to an alternate payee (a spouse, former spouse, child, or dependent of a participant in a retirement plan) the right to receive all or part of the benefits that would be payable to a participant under the plan. The order requires certain specific information, and it can’t alter the amount or form of the benefits of the plan. Tax treatment if all of an eligible distribution isn’t rolled over. Any part of an eligible rollover distribution that you keep is taxable in the year you receive it. If you don’t roll over any of it, special rules for lump-sum distributions may apply. See Lump-Sum Distributions under Taxation of Nonperiodic Payments in Pub. 575. The 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes, doesn’t apply. Keogh plans and rollovers. If you are self-employed, you are generally treated as an employee for rollover purposes. Consequently, if you receive an eligible rollover distribution from a Keogh plan (a qualified plan with at least one self-employed participant), you can roll over all or part of the distribution (including a lump-sum distribution) into a traditional IRA. For information on lump-sum distributions, see Lump-Sum Distributions under Taxation of Nonperiodic Payments in Pub. 575. More information. For more information about Keogh plans, see chapter 4 of Pub. 560. Distribution from a tax-sheltered annuity. If you receive an eligible rollover distribution from a tax-sheltered annuity plan (section 403(b) plan), you can roll it over into a traditional IRA. Receipt of property other than money. If you receive property other than money, you can sell the property and roll over the proceeds as discussed earlier. Rollover from bond purchase plan. If you redeem retirement bonds that were distributed to you under a qualified bond purchase plan, you can roll over tax free into a traditional IRA the part of the amount you receive that is more than your basis in the retirement bonds. Reporting rollovers from employer plans. Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, 1040-SR, or 1040-NR, line 5a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, 1040-SR, or 1040-NR, line 5b. Also, enter "Rollover" next to line 5b of Form 1040, 1040-SR, or 1040-NR. Transfers Incident to DivorceIf an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. The transfer is tax free. For information about transfers of interests in employer plans, see Distributions under divorce or similar proceedings (alternate payees) under Rollover From Employer's Plan Into an IRA, earlier. Transfer methods. There are two commonly used methods of transferring IRA assets to a spouse or former spouse. The methods are:
Changing the name on the IRA. If all the assets are to be transferred, you can make the transfer by changing the name on the IRA from your name to the name of your spouse or former spouse. Direct transfer. Under this method, you direct the trustee of the traditional IRA to transfer the affected assets directly to the trustee of a new or existing traditional IRA set up in the name of your spouse or former spouse. If your spouse or former spouse is allowed to keep his or her portion of the IRA assets in your existing IRA, you can direct the trustee to transfer the assets you are permitted to keep directly to a new or existing traditional IRA set up in your name. The name on the IRA containing your spouse's or former spouse's portion of the assets would then be changed to show his or her ownership. . If the transfer results in a change in the basis of the traditional IRA of either spouse, both spouses must file Form 8606 and follow the directions in the instructions for that form. .Converting From Any Traditional IRA Into a Roth IRAAllowable conversions. You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. If properly (and timely) rolled over, the 10% additional tax on early distributions won’t apply. However, a part or all of the distribution from your traditional IRA may be included in gross income and subjected to ordinary income tax. You must roll over into the Roth IRA the same property you received from the traditional IRA. You can roll over part of the withdrawal into a Roth IRA and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) and may be subject to the 10% additional tax on early distributions. See When Can You Withdraw or Use Assets, later, for more information on distributions from traditional IRAs and Early Distributions in Pub. 590-B for more information on the tax on early distributions. Periodic distributions. If you started taking substantially equal periodic payments from a traditional IRA, you can convert the amounts in the traditional IRA to a Roth IRA and then continue the periodic payments. The 10% additional tax on early distributions won’t apply even if the distributions aren’t qualified distributions (as long as they are part of a series of substantially equal periodic payments). Required distributions. You can’t convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 72) under the required distribution rules (discussed in Pub. 590-B). Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you hadn’t converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. You don’t include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed under Are Distributions Taxable in Pub. 590-B. . If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Pub. 505, Tax Withholding and Estimated Tax. .RecharacterizationsYou may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. To recharacterize a contribution, you must generally have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year for which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following.
No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made in tax years beginning after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA. If you made a conversion in the 2017 tax year, you had until the due date (with extensions) for filing the return for that tax year to recharacterize it. No deduction allowed. You can’t deduct the contribution to the first IRA. Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. The contribution won’t be treated as having been made to the second IRA to the extent any deduction was allowed for the contribution to the first IRA. Conversion by rollover from traditional to Roth IRA. You receive a distribution from a traditional IRA in 1 tax year. You then roll it over into a Roth IRA within 60 days of the distribution from the traditional IRA but in the next year. For recharacterization purposes, you would treat this transaction as a contribution to the Roth IRA in the year of the distribution from the traditional IRA. Effect of previous tax-free transfers. If an amount has been moved from one IRA to another in a tax-free transfer, such as a rollover, you generally can’t recharacterize the amount that was transferred. However, see Traditional IRA mistakenly moved to SIMPLE IRA next. Traditional IRA mistakenly moved to SIMPLE IRA. If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Recharacterizing excess contributions. You can recharacterize only actual contributions. If you are applying excess contributions for prior years as current contributions, you can recharacterize them only if the recharacterization would still be timely with respect to the tax year for which the applied contributions were actually made. Example. You contributed more than you were entitled to in 2021. You can’t recharacterize the excess contributions you made in 2021 after April 18, 2022, because contributions after that date are no longer timely for 2021. Recharacterizing employer contributions. You can’t recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. SEPs are discussed in chapter 2 of Pub. 560. SIMPLE plans are discussed in chapter 3 of Pub. 560. Recharacterization not counted as rollover. The recharacterization of a contribution is not treated as a rollover for purposes of the 1-year waiting period described earlier in this chapter under Rollover From One IRA Into Another. This is true even if the contribution would have been treated as a rollover contribution by the second IRA if it had been made directly to the second IRA rather than as a result of a recharacterization of a contribution to the first IRA. How Do You Recharacterize a Contribution?To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. You must make the notifications by the date of the transfer. Only one notification is required if both IRAs are maintained by the same trustee. The notification(s) must include all of the following information.
In most cases, the net income you must transfer is determined by your IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2021 that are recharacterized, use Worksheet 1-3. See Regulations section 1.408A-5 for more information. Worksheet 1-3. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount To Be Recharacterized
Timing. The election to recharacterize and the transfer must both take place on or before the due date (including extensions) for filing your tax return for the tax year for which the contribution was made to the first IRA. Extension. Ordinarily, you must choose to recharacterize a contribution by the due date of the return or the due date plus extensions. However, if you miss this deadline, you can still recharacterize a contribution if:
Appropriate corrective action consists of:
Once this is done, you must amend your return to show the recharacterization. You have until the regular due date for amending a return to do this. Report the recharacterization on the amended return and write “Filed pursuant to section 301.9100-2” on the return. File the amended return at the same address you filed the original return. Decedent. The election to recharacterize can be made on behalf of a deceased IRA owner by the executor, administrator, or other person responsible for filing the decedent's final income tax return. Election can’t be changed. After the transfer has taken place, you can’t change your election to recharacterize. Same trustee. Recharacterizations made with the same trustee can be made by redesignating the first IRA as the second IRA, rather than transferring the account balance. Reporting a RecharacterizationIf you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. You must treat the contribution as having been made to the second IRA. More than one IRA. If you have more than one IRA, figure the amount to be recharacterized only on the account from which you withdraw the contribution. When Can You Withdraw or Use Assets?You can withdraw or use your traditional IRA assets at any time. However, a 10% additional tax generally applies if you withdraw or use IRA assets before you are age 59½. This is explained under Age 59½ Rule under Early Distributions in Pub. 590-B. You can generally make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that, even if you are under age 59½, the 10% additional tax may not apply. These withdrawals are explained later. Contributions Returned Before Due Date of ReturnIf you made IRA contributions in 2021, you can withdraw them tax free by the due date of your return. If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply.
Note.If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed). In most cases, the net income you must withdraw is determined by the IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2021 that are returned to you, use Worksheet 1-4. See Regulations section 1.408-11 for more information. Worksheet 1-4. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount To Be Withdrawn From the IRA
Example. On May 2, 2022, when her IRA is worth $4,800, Cathy makes a $1,600 regular contribution to her IRA. Cathy requests that $400 of the May 2, 2022, contribution be returned to her. On February 2, 2023, when the IRA is worth $7,600, the IRA trustee distributes to Cathy the $400 plus net income attributable to the contribution. No other contributions have been made to the IRA for 2022 and no distributions have been made. The adjusted opening balance is $6,400 ($4,800 + $1,600) and the adjusted closing balance is $7,600. The net income due to the May 2, 2022, contribution is $75 ($400 x ($7,600 – $6,400) ÷ $6,400). Therefore, the total to be distributed on February 2, 2023, is $475. This is shown on Worksheet 1-4. Example—Illustrated. Worksheet 1-4. Example—Illustrated
Last-in first-out rule. If you made more than one regular contribution for the year, your last contribution is considered to be the one that is returned to you first. Earnings Includible in IncomeYou must include in income any earnings on the contributions you withdraw. Include the earnings in income for the year in which you made the contributions, not the year in which you withdraw them. . Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes, later..Early Distributions TaxThe 10% additional tax on distributions made before you reach age 59½ doesn’t apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. See Early Distributions under What Acts Result in Penalties or Additional Taxes? in Pub. 590-B. Excess Contributions TaxIf any part of these contributions is an excess contribution for 2020, it is subject to a 6% excise tax. You won’t have to pay the 6% tax if any 2020 excess contribution was withdrawn by April 15, 2021 (plus extensions), and if any 2021 excess contribution is withdrawn by April 18, 2022 (plus extensions). See Excess Contributions under What Acts Result in Penalties or Additional Taxes, later. . You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. See Recharacterizations, earlier, for more information. .What Acts Result in Penalties or Additional Taxes?The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you don’t follow the rules. There are additions to the regular tax for using your IRA funds in prohibited transactions. There are also additional taxes for the following activities.
There are penalties for overstating the amount of nondeductible contributions and for failure to file Form 8606, if required. This chapter discusses those acts that you should avoid and the additional taxes and other costs, including loss of IRA status, that apply if you don’t avoid those acts. Prohibited TransactionsGenerally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are some examples of prohibited transactions with a traditional IRA.
. If your IRA is invested in nonpublicly traded assets or assets that you directly control, the risk of engaging in a prohibited transaction in connection with your account may be increased..Fiduciary. For these purposes, a fiduciary includes anyone who does any of the following.
Effect on an IRA account. Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Effect on you or your beneficiary. If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. For information on figuring your gain and reporting it in income, see Are Distributions Taxable? in Pub. 590-B. The distribution may be subject to additional taxes or penalties. Borrowing on an annuity contract. If you borrow money against your traditional IRA annuity contract, you must include in your gross income the fair market value of the annuity contract as of the first day of your tax year. You may have to pay the 10% additional tax on early distributions discussed in Pub. 590-B. Pledging an account as security. If you use a part of your traditional IRA account as security for a loan, that part is treated as a distribution and is included in your gross income. You may have to pay the 10% additional tax on early distributions discussed in Pub. 590-B. Trust account set up by an employer or an employee association. Your account or annuity doesn’t lose its IRA treatment if your employer or the employee association with whom you have your traditional IRA engages in a prohibited transaction. Owner participation. If you participate in the prohibited transaction with your employer or the association, your account is no longer treated as an IRA. Taxes on prohibited transactions. If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction isn’t corrected. Loss of IRA status. If the traditional IRA ceases to be an IRA because of a prohibited transaction by you or your beneficiary, you or your beneficiary aren’t liable for these excise taxes. However, you or your beneficiary may have to pay other taxes as discussed under Effect on you or your beneficiary, earlier. Exempt TransactionsThe Department of Labor has authority to grant administrative exemptions from the prohibited transaction provisions of ERISA and the Code for a class of transactions or for individual transactions. In order to grant an administrative exemption, the Department must make the following three determinations.
For additional information on prohibited transaction exemptions, see the Department of Labor publication, Exemption Procedures under Federal Pension Law. The following two types of transactions aren’t prohibited transactions if they meet the requirements that follow.
Payments of cash, property, or other consideration. Even if a sponsor makes payments to you or your family, there is no prohibited transaction if all three of the following requirements are met.
If the consideration is group-term life insurance, requirements (1) and (3) don’t apply if no more than $5,000 of the face value of the insurance is based on a dollar-for-dollar basis on the assets in your IRA. Services received at reduced or no cost. Even if a sponsor provides services at reduced or no cost, there is no prohibited transaction if all of the following requirements are met.
Investment in CollectiblesIf your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions discussed in Pub. 590-B. Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, aren’t included in your income when the collectible is actually distributed from your IRA. Collectibles. These include:
Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Unrelated Business IncomeAn IRA is subject to tax on unrelated business income if it carries on an unrelated trade or business. An unrelated trade or business means any trade or business regularly carried on by the IRA or by a partnership of which it is a member. If the IRA has $1,000 or more of unrelated trade or business gross income, the IRA trustee is required to file a Form 990-T, Exempt Organization Business Income Tax Return. The Form 990-T must be filed by the 15th day of the 4th month after the end of the IRA’s tax year. See Pub. 598, Tax on Unrelated Business Income of Exempt Organizations, for more information. Excess ContributionsGenerally, an excess contribution is the amount contributed to your traditional IRAs for the year that is more than the smaller of:
The taxable compensation limit applies whether your contributions are deductible or nondeductible. An excess contribution could be the result of your contribution, your spouse's contribution, your employer's contribution, or an improper rollover contribution. If your employer makes contributions on your behalf to a SEP IRA, see chapter 2 of Pub. 560. Tax on Excess ContributionsIn general, if the excess contributions for a year aren’t withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of your tax year. The additional tax is figured on Form 5329. For information on filing Form 5329, see Reporting Additional Taxes, later. Example. For 2021, Paul Jones is 45 years old and single, his compensation is $31,000, and he contributed $6,500 to his traditional IRA. Paul has made an excess contribution to his IRA of $500 ($6,500 minus the $6,000 limit). The contribution earned $5 interest in 2021 and $6 interest in 2022 before the due date of the return, including extensions. He doesn’t withdraw the $500 or the interest it earned by the due date of his return, including extensions. Paul figures his additional tax for 2021 by multiplying the excess contribution ($500) shown on Form 5329, line 16, by 0.06, giving him an additional tax liability of $30. He enters the tax on Form 5329, line 17, and on Schedule 2 (Form 1040), line 8. See Paul's filled-in Form 5329, later. Excess Contributions Withdrawn by Due Date of ReturnYou won’t have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw any interest or other income earned on the excess contribution. You must complete your withdrawal by the date your tax return for that year is due, including extensions. How to treat withdrawn contributions. Don’t include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both of the following conditions are met.
You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income you must withdraw may be a negative amount. In most cases, the net income you must transfer will be determined by your IRA trustee or custodian. If you need to determine the applicable net income you need to withdraw, you can use the same method that was used in Worksheet 1-3. If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed). How to treat withdrawn interest or other income. You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made. Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions discussed in Pub. 590-B. Form 1099-R. You will receive Form 1099-R indicating the amount of the withdrawal. If the excess contribution was made in a previous tax year, the form will indicate the year in which the earnings are taxable. Example. Maria, age 35, made an excess contribution in 2021 of $1,000, which she withdrew by April 18, 2022, the due date of her return. At the same time, she also withdrew the $50 income that was earned on the $1,000. She must include the $50 in her gross income for 2021 (the year in which the excess contribution was made). She must also pay an additional tax of $5 (the 10% additional tax on early distributions because she isn’t yet 59½ years old), but she doesn’t have to report the excess contribution as income or pay the 6% excise tax. Maria receives a Form 1099-R showing that the earnings are taxable for 2021. Excess Contributions Withdrawn After Due Date of ReturnIn general, you must include all distributions (withdrawals) from your traditional IRA in your gross income. However, if the following conditions are met, you can withdraw excess contributions from your IRA and not include the amount withdrawn in your gross income.
The withdrawal can take place at any time, even after the due date, including extensions, for filing your tax return for the year. Excess contribution deducted in an earlier year. If you deducted an excess contribution in an earlier year for which the total contributions weren’t more than the maximum deductible amount for that year (see the following table), you can still remove the excess from your traditional IRA and not include it in your gross income. To do this, file Form 1040-X for that year and don’t deduct the excess contribution on the amended return. Generally, you can file an amended return within 3 years after you filed your return, or 2 years from the time the tax was paid, whichever is later.
Excess due to incorrect rollover information. If an excess contribution in your traditional IRA is the result of a rollover and the excess occurred because the information the plan was required to give you was incorrect, you can withdraw the excess contribution. The limits mentioned above are increased by the amount of the excess that is due to the incorrect information. You will have to amend your return for the year in which the excess occurred to correct the reporting of the rollover amounts in that year. Don’t include in your gross income the part of the excess contribution caused by the incorrect information. Deducting an Excess Contribution in a Later YearYou can’t apply an excess contribution to an earlier year even if you contributed less than the maximum amount allowable for the earlier year. However, you may be able to apply it to a later year if the contributions for that later year are less than the maximum allowed for that year. You can deduct excess contributions for previous years that are still in your traditional IRA. The amount you can deduct this year is the lesser of the following two amounts.
This method lets you avoid making a withdrawal. It doesn’t, however, let you avoid the 6% tax on any excess contributions remaining at the end of a tax year. To figure the amount of excess contributions for previous years that you can deduct this year, see Worksheet 1-5. Worksheet 1-5. Excess Contributions Deductible This Year
Example. Teri was entitled to contribute to her traditional IRA and deduct $1,000 in 2020 and $1,500 in 2021 (the amounts of her taxable compensation for these years). For 2020, she actually contributed $1,400 but could deduct only $1,000. In 2020, $400 is an excess contribution subject to the 6% tax. However, she wouldn’t have to pay the 6% tax if she withdrew the excess (including any earnings) before the due date of her 2020 return. Because Teri didn’t withdraw the excess, she owes excise tax of $24 for 2020. To avoid the excise tax for 2021, she can correct the $400 excess amount from 2020 in 2021 if her actual contributions are only $1,100 for 2021 (the allowable deductible contribution of $1,500 minus the $400 excess from 2020 she wants to treat as a deductible contribution in 2021). Teri can deduct $1,500 in 2021 (the $1,100 actually contributed plus the $400 excess contribution from 2020). This is shown on Worksheet 1-5. Example—Illustrated. Worksheet 1-5. Example—Illustrated
Form 5329, page 1 Paul Jones Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 2021 Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 2021 Summary: This is an example of Form 5329 (2021) with items included as described in the text. Additionally, these line items are completed:
Please click here for the text description of the image. Closed tax year. A special rule applies if you incorrectly deducted part of the excess contribution in a closed tax year (one for which the period to assess a tax deficiency has expired). The amount allowable as a traditional IRA deduction for a later correction year (the year you contribute less than the allowable amount) must be reduced by the amount of the excess contribution deducted in the closed year. To figure the amount of excess contributions for previous years that you can deduct this year if you incorrectly deducted part of the excess contribution in a closed tax year, see Worksheet 1-6. Worksheet 1-6. Excess Contributions Deductible This Year if Any Were Deducted in a Closed Tax Year
Reporting Additional TaxesGenerally, you must use Form 5329 to report the tax on excess contributions, early distributions, and excess accumulations. Filing a tax return. If you must file an individual income tax return, complete Form 5329 and attach it to your Form 1040, 1040-SR, or 1040-NR. Enter the total additional taxes due on Schedule 2 (Form 1040), line 8. Not filing a tax return. If you don’t have to file a return, but do have to pay one of the additional taxes mentioned earlier, file the completed Form 5329 with the IRS at the time and place you would have filed Form 1040, 1040-SR, or 1040-NR. Be sure to include your address on page 1 and your signature and date on page 2. Enclose, but don’t attach, a check or money order payable to “United States Treasury” for the tax you owe, as shown on Form 5329. Write your social security number and “2021 Form 5329” on your check or money order. Form 5329 not required. You don’t have to use Form 5329 if either of the following situations exists.
2. Roth IRAsRemindersDeemed IRAs. For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.For this purpose, a “qualified employer plan” includes:
Designated Roth accounts. Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. These elective deferrals are included in your income, but qualified distributions from these accounts aren’t included in your income. Designated Roth accounts aren’t IRAs and shouldn’t be confused with Roth IRAs. Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. A contribution to one doesn’t impact your eligibility to contribute to the other. See Pub. 575 for more information on designated Roth accounts. IntroductionRegardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Contributions not reported. You don’t report Roth IRA contributions on your return. What Is a Roth IRA?A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Unlike a traditional IRA, you can’t deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed in chapter 2 of Pub. 590-B) are tax free, and if you choose, you can leave amounts in your Roth IRA as long as you live. Traditional IRA. A traditional IRA is any IRA that isn’t a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1. Can You Contribute to a Roth IRA?Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:
. You may be able to claim a credit for contributions to your Roth IRA. For more information, see chapter 3..Is there an age limit for contributions? Contributions can be made to your Roth IRA regardless of your age. Compensation. Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. For more information, see What Is Compensation under Who Can Open a Traditional IRA? in chapter 1. Modified AGI. Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. Use Worksheet 2-1 to determine your modified AGI. .Don’t subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. . How Much Can Be Contributed?The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes
Roth IRAs only. If contributions are made only to Roth IRAs, your contribution limit is generally the lesser of:
However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced. Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs is generally the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan don’t affect this limit. This means that your contribution limit is the lesser of:
However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced. SEPs and SIMPLE plans are discussed in Pub. 560. Repayment of reservist distributions. You can repay qualified reservist distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. However, the total repayments can’t be more than the amount of your distribution. Note.If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. Contribution limit reduced. If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Use Table 2-1 to determine if this reduction applies to you. Table 2-1. Effect of Modified AGI on Roth IRA Contribution
Figuring the reduction. If the amount you can contribute must be reduced, use Worksheet 2-2 to figure your reduced contribution limit. Worksheet 2-2. Determining Your Reduced Roth IRA Contribution Limit
.Round your reduced contribution limit up to the nearest $10. If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. . Example. You are a 45-year-old, single individual with taxable compensation of $126,000. You want to make the maximum allowable contribution to your Roth IRA for 2021. Your modified AGI for 2021 is $126,000. You haven’t contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $6,000. You figure your reduced Roth IRA contribution of $5,600 as shown on Worksheet 2-2. Example—Illustrated. Worksheet 2-2. Example—Illustrated
When Can You Make Contributions?You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). . You can make contributions for 2021 by the due date (not including extensions) for filing your 2021 tax return. This means that most people can make contributions for 2021 by April 18, 2022..What if You Contribute Too Much?A 6% excise tax applies to any excess contribution to a Roth IRA. Excess contributions. These are the contributions to your Roth IRAs for a year that equal the total of:
Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made. If you timely filed your 2021 tax return without withdrawing a contribution that you made in 2021, you can still have the contribution returned to you within 6 months of the due date of your 2021 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return. Applying excess contributions. If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in 1 year to a later year if the contributions for that later year are less than the maximum allowed for that year. Can You Move Amounts Into a Roth IRA?You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. ConversionsYou can convert a traditional IRA to a Roth IRA. The conversion is treated as a rollover, regardless of the conversion method used. Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another, apply to these rollovers. However, the 1-year waiting period doesn’t apply. Conversion methods. You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways.
Same trustee. Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract. Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you hadn’t converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. . If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Pub. 505..Rollover From Employer's Plan Into a Roth IRAYou can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):
Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. Rollover methods. You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways.
Rollover by nonspouse beneficiary. If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a Roth IRA. You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Pub. 575. Income. You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you hadn’t rolled them over into a Roth IRA. You don’t include in gross income any part of a distribution from a qualified retirement plan that is a return of basis (after-tax contributions) to the plan that were taxable to you when paid. These amounts are normally included in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. . If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Pub. 505..For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1. Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) PaymentsIf you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. The contribution is treated as a qualified rollover contribution. The amount you can roll over to your Roth IRA can’t exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that isn’t taxable when distributed. Rollover From a Roth IRAYou can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another, apply to these rollovers. However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. A rollover from a Roth IRA to an employer retirement plan isn’t allowed. A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. If you roll over an amount from one Roth IRA to another Roth IRA, the 5-year period used to determine qualified distributions doesn’t change. The 5-year period begins with the first tax year for which the contribution was made to the initial Roth IRA. See What Are Qualified Distributions? in chapter 2 of Pub. 590-B. 3. Retirement Savings Contributions Credit (Saver's Credit)What's NewModified AGI limit for retirement savings contributions credit increased. For 2021, you may be able to claim the retirement savings contributions credit if your modified AGI isn’t more than:
IntroductionYou may be able to take a tax credit if you make eligible contributions (defined later) to a qualified retirement plan, an eligible deferred compensation plan, or an IRA. You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). This credit could reduce the federal income tax you pay dollar for dollar. Can you claim the credit? If you make eligible contributions to a qualified retirement plan, an eligible deferred compensation plan, or an IRA, you can claim the credit if all of the following apply.
Full-time student. You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either:
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 (AGI). This is generally the amount on line 11 of your 2021 Form 1040, 1040-SR, or 1040-NR. However, you must add to that amount any exclusion or deduction claimed for the year for:
Eligible contributions. These include:
They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or section 403(b) annuity. For purposes of the credit, an employee contribution will be voluntary as long as it isn’t required as a condition of employment. Reducing eligible contributions. Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included above under Eligible contributions. Also reduce your eligible contributions by any distribution from a Roth IRA that isn’t rolled over, even if the distribution isn’t taxable. Don’t reduce your eligible contributions by any of the following.
Distributions received by spouse. Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit. Testing period. The testing period consists of the year for which you claim the credit, the period after the end of that year and before the due date (including extensions) for filing your return for that year, and the 2 tax years before that year. Example. You and your spouse filed joint returns in 2019 and 2020, and plan to do so in 2021 and 2022. You received a taxable distribution from a qualified plan in 2019 and a taxable distribution from an eligible deferred compensation plan in 2020. Your spouse received taxable distributions from a Roth IRA in 2021 and tax-free distributions from a Roth IRA in 2022 before April 18. You made eligible contributions to an IRA in 2021 and you otherwise qualify for this credit. You must reduce the amount of your qualifying contributions in 2021 by the total of the distributions you received in 2019, 2020, 2021, and 2022. Maximum eligible contributions. After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person. Effect on other credits. The amount of this credit won’t change the amount of your refundable tax credits. A refundable tax credit, such as the earned income credit or the refundable amount of your child tax credit, is an amount that you would receive as a refund even if you didn’t otherwise owe any taxes. Maximum credit. This is a nonrefundable credit. The amount of the credit in any year can’t be more than the amount of tax that you would otherwise pay (not counting any refundable credits) in any year. If your tax liability is reduced to zero because of other nonrefundable credits, such as the credit for child and dependent care expenses, then you won’t be entitled to this credit. How to figure and report the credit. The amount of the credit you can get 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%. Your credit rate depends on your income and your filing status. See Form 8880 to determine your credit rate. The maximum contribution taken into account is $2,000 per person. On a joint return, up to $2,000 is taken into account for each spouse. Figure the credit on Form 8880. Report the credit on Schedule 3 (Form 1040), line 4, and attach Form 8880 to your return. How To Get Tax HelpIf you have questions about a tax issue; need help preparing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away. Preparing and filing your tax return. After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return. . For 2021, if you received an Economic Impact Payment (EIP), refer to your Notice 1444-C, Your 2021 Economic Impact Payment. If you received Advance Child Tax Credit payments, refer to your Letter 6419..Free options for tax preparation. Go to IRS.gov to see your options for preparing and filing your return online or in your local community, if you qualify, which include the following.
Using online tools to help prepare your return. Go to IRS.gov/Tools for the following.
. Getting answers to your tax questions. On IRS.gov, you can get up-to-date information on current events and changes in tax law..
. Need someone to prepare your tax return? There are various types of tax return preparers, including tax preparers, enrolled agents, certified public accountants (CPAs), attorneys, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:
Although the tax preparer always signs the return, you're ultimately responsible for providing all the information required for the preparer to accurately prepare your return. Anyone paid to prepare tax returns for others should have a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov. Advance child tax credit payments. From July through December 2021, advance payments were sent automatically to taxpayers with qualifying children who met certain criteria. The advance child tax credit payments were early payments of up to 50% of the estimated child tax credit that taxpayers may properly claim on their 2021 returns. Go to IRS.gov/AdvCTC for more information about these payments and how they can affect your taxes. Coronavirus. Go to IRS.gov/Coronavirus for links to information on the impact of the coronavirus, as well as tax relief available for individuals and families, small and large businesses, and tax-exempt organizations. Employers can register to use Business Services Online. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement. IRS social media. Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site. The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.
Watching IRS videos. The IRS Video portal (IRSVideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals. Online tax information in other languages. You can find information on IRS.gov/MyLanguage if English isn’t your native language. Free Over-the-Phone Interpreter (OPI) Service. The IRS is committed to serving our multilingual customers by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), other IRS offices, and every VITA/TCE return site. The OPI service is accessible in more than 350 languages. Accessibility Helpline available for taxpayers with disabilities. Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). Getting tax forms and publications. Go to IRS.gov/Forms to view, download, or print all of the forms, instructions, and publications you may need. Or, you can go to IRS.gov/OrderForms to place an order. Getting tax publications and instructions in eBook format. You can also download and view popular tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/eBooks. Note.IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as intended. Access your online account (individual taxpayers only). Go to IRS.gov/Account to securely access information about your federal tax account.
Using direct deposit. The fastest way to receive a tax refund is to file electronically and choose direct deposit, which securely and electronically transfers your refund directly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online. Getting a transcript of your return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/Transcripts. Click on either “Get Transcript Online” or “Get Transcript by Mail” to order a free copy of your transcript. If you prefer, you can order your transcript by calling 800-908-9946. Reporting and resolving your tax-related identity theft issues.
Ways to check on the status of your refund.
Note.The IRS can’t issue refunds before mid-February 2022 for returns that claimed the EIC or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits. Making a tax payment. Go to IRS.gov/Payments for information on how to make a payment using any of the following options.
Note.The IRS uses the latest encryption technology to ensure that the electronic payments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money order. What if I can’t pay now? Go to IRS.gov/Payments for more information about your options.
Filing an amended return. You can now file Form 1040-X electronically with tax filing software to amend 2019 or 2020 Forms 1040 and 1040-SR. To do so, you must have e-filed your original 2019 or 2020 return. Amended returns for all prior years must be mailed. Go to IRS.gov/Form1040X for information and updates. Checking the status of your amended return. Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns. Note.It can take up to 3 weeks from the date you filed your amended return for it to show up in our system, and processing it can take up to 16 weeks. Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter. You can use Schedule LEP, Request for Change in Language Preference, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language, when these are available. Once your Schedule LEP is processed, the IRS will determine your translation needs and provide you translations when available. If you have a disability requiring notices in an accessible format, see Form 9000. Contacting your local IRS office. Keep in mind, many questions can be answered on IRS.gov without visiting an IRS TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment, so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.” The Taxpayer Advocate Service (TAS) Is Here To Help YouWhat Is TAS?TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Their job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights. How Can You Learn About Your Taxpayer Rights?The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them. What Can TAS Do for You?TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
How Else Does TAS Help Taxpayers?TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to them at IRS.gov/SAMS. TAS for Tax ProfessionalsTAS can provide a variety of information for tax professionals, including tax law updates and guidance, TAS programs, and ways to let TAS know about systemic problems you’ve seen in your practice. Low Income Taxpayer Clinics (LITCs)LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee for eligible taxpayers. To find an LITC near you, go to TaxpayerAdvocate.IRS.gov/about-us/Low-Income-Taxpayer-Clinics-LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List. Publication 590-A - Additional MaterialAppendicesTo help you complete your tax return, use the following appendices that include worksheets and tables.
Appendix A. Summary Record of Traditional IRA(s) for 2021
Appendix B. Worksheets for Social Security Recipients Who Contribute to a Traditional IRA
Appendix B. (Continued)
Appendix B. (Continued)
Appendix B. (Continued)
Appendix B. (Continued)
Appendix B. (Continued)
Appendix C — Line 1 Worksheet
IndexAAdditional taxes, What Acts Result in Penalties or Additional Taxes?(see also Penalties)Reporting, Reporting Additional TaxesAdjusted gross income (AGI), Modified adjusted gross income (AGI)., Modified AGI.(see also Modified adjusted gross income (AGI))Retirement savings contributions credit, Adjusted gross income (AGI).Age 50Contributions, General LimitAge limitTraditional IRA, When Can Contributions Be Made?Alimony, Alimony and separate maintenance.Annuity contracts, Annuity or endowment contracts.Borrowing on, Borrowing on an annuity contract.Assistance (see Tax help)CCollectibles, Investment in Collectibles, Collectibles.Community property, Community property laws.CompensationAlimony, Alimony and separate maintenance.Defined, What Is Compensation?Nontaxable combat pay, Nontaxable combat pay.Self-employment, Self-employment loss.Wages, salaries, etc., Wages, salaries, etc.Conduit IRAs, IRA as a holding account (conduit IRA) for rollovers to other eligible plans.Contribution limitsMore than one IRA, More than one IRA.Contributions Designating the year, Designating year for which contribution is made.Distributions in same year as, Both contributions for 2021 and distributions in 2021.Excess (see Excess contributions)Less than maximum, Less Than Maximum ContributionsNondeductible (see Nondeductible contributions)Not required, Contributions not required.Qualified reservist repayments, Qualified reservist repayments.Recharacterizing (see Recharacterization)Retirement savings contributions credit, Eligible contributions.Roth IRAs, Can You Contribute to a Roth IRA?, Applying excess contributions.Traditional IRAs, How Much Can Be Contributed?, More Than Maximum ContributionsWhen to contribute, When Can Contributions Be Made?Withdrawing before due date of return, Contributions Returned Before Due Date of ReturnConversionsTo Roth IRAs, ConversionsCreditsRetirement savings contributions credit, Retirement Savings Contributions Credit (Saver's Credit), How to figure and report the credit.DDeductionsFiguring reduced IRA deduction, How To Figure Your Reduced IRA DeductionPhaseout, Deduction PhaseoutTraditional IRAs, How Much Can You Deduct?, Examples—Worksheet for Reduced IRA Deduction for 2021Deemed IRAs, RemindersDefined benefit plans, Defined benefit plan.Defined contribution plans, Defined contribution plan.Difficulty of care paymentsCompensation, Difficulty of care payments.Nondeductible IRA contributions, Difficulty of care payments.DistributionsContributions in same year as, Both contributions for 2021 and distributions in 2021.Income from, Income from IRA distributions.Inherited IRAs (see Inherited IRAs)Divorce Rollovers by former spouse, Distributions under divorce or similar proceedings (alternate payees).Transfers incident to, Transfers Incident to DivorceEEarly distributions, What Acts Result in Penalties or Additional Taxes?(see also Penalties)Tax, Early Distributions TaxEmployer and employee association trust accounts, Employer and Employee Association Trust AccountsEmployer plansCovered by, Covered by an employer retirement plan.Year(s) covered, For Which Year(s) Are You Covered?Employer retirement plans, Are You Covered by an Employer Plan?Defined benefit plans, Defined benefit plan.Defined contribution plans, Defined contribution plan.Effect of modified AGI on deduction (Table 1-2), Table 1-2. Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work Limit if covered by, Limit if Covered by Employer PlanProhibited transactions, Trust account set up by an employer or an employee association.Endowment contracts (see Annuity contracts)Excess contributions, Excess ContributionsClosed tax year, Closed tax year.Deducted in earlier year, Excess contribution deducted in an earlier year.Deducting in a later year, Deducting an Excess Contribution in a Later YearDue to incorrect rollover information, Excess due to incorrect rollover information.Recharacterizing, Recharacterizing excess contributions.Roth IRAs, What if You Contribute Too Much?Tax, Excess Contributions TaxWithdrawn after due date of return, Excess Contributions Withdrawn After Due Date of ReturnWithdrawn by due date of return, Excess Contributions Withdrawn by Due Date of ReturnExempt transactions, Exempt TransactionsFFederal judges, Federal judges.FiduciariesProhibited transactions, Fiduciary.Filing before IRA contribution is made, Filing before a contribution is made.Filing status, Filing Status Deduction phaseout and, Filing status.Firefighters, volunteer, Volunteer firefighters.Form 1040Modified AGI calculation from, Form 1040 or 1040-SR.Form 1040-NRModified AGI calculation from, Form 1040-NR.Form 1040-SRModified AGI calculation from, Form 1040 or 1040-SR.Form 1099-RDistribution code 1 used on, Form 5329 not required.Withdrawal of excess contribution, Form 1099-R.Form 5329, Reporting Additional TaxesForm 8606, Form 8606.Failure to file, penalty, Penalty for failure to file Form 8606.Form 8880, How to figure and report the credit.Form W-2Employer retirement plans, Are You Covered by an Employer Plan?Frozen deposits, Frozen deposit.Full-time studentRetirement savings contributions credit, Full-time student.IIndividual retirement accounts, Individual Retirement AccountIndividual retirement annuities, Individual Retirement AnnuityIndividual retirement arrangements (IRAs)How to set up, How Can a Traditional IRA Be Opened?When to set up, When Can a Traditional IRA Be Opened?Individual retirement bonds, Individual Retirement Bonds Inherited IRAs, What if You Inherit an IRA?, More information.Rollovers, Inherited IRAs.Interest on IRA, RemindersInvestment in collectiblesCollectibles defined, Collectibles.Exception, Exception.MMilitary death gratuities, Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) PaymentsMissing children, photographs of, RemindersModified adjusted gross income (AGI)Employer retirement plan coverage and deduction (Table 1-2), Table 1-2. Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work Figuring (Worksheet 1-1), Worksheet 1-1. Figuring Your Modified AGINo employer retirement plan coverage and deduction (Table 1-3), Table 1-3. Effect of Modified AGI1 on Deduction if You Aren’t Covered by a Retirement Plan at Work Roth IRAs, Modified AGI.Effect on contribution amount (Table 2-1), Table 2-1. Effect of Modified AGI on Roth IRA ContributionMore than one IRA, More than one IRA.Recharacterization, More than one IRA.PPartial rollovers, Partial rollovers., Partial rollover.Penalties, What Acts Result in Penalties or Additional Taxes?, Form 5329 not required.Excess contributions, Excess ContributionsRoth IRAs, What if You Contribute Too Much? Exempt transactions, Exempt Transactions, Services received at reduced or no cost.Failure to file Form 8606, Penalty for failure to file Form 8606.Overstatement of nondeductible contributions, Penalty for overstatement.Prohibited transactions, Prohibited Transactions, Services received at reduced or no cost.Reporting, Reporting Additional TaxesPhaseout of deduction, Deduction PhaseoutPledging account as security, Pledging an account as security.Prohibited transactions, Prohibited Transactions, Services received at reduced or no cost.Taxes on, Taxes on prohibited transactions. Publications (see Tax help)RRecharacterization, Recharacterizations, More than one IRA. Determining amount of net income due to contribution and total amount to be recharacterized (Worksheet 1-3), Worksheet 1-3. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount To Be Recharacterized Reporting, Reporting a RecharacterizationTiming of, Timing.Recordkeeping requirementsTraditional IRAs, Nondeductible ContributionsReportingAdditional taxes, Reporting Additional TaxesDeductible contributions, Reporting Deductible ContributionsRecharacterization, Reporting a RecharacterizationRolloversFrom employer plans, Reporting rollovers from employer plans.From IRAs, Reporting rollovers from IRAs.Reservists, Reservists.Qualified reservist repayments, Qualified reservist repayments.Retirement bonds (see Individual retirement bonds)Retirement savings contributions credit, Retirement Savings Contributions Credit (Saver's Credit), How to figure and report the credit.Rollovers, Rollovers, Reporting rollovers from employer plans.Amount, Amount.Choosing an option (Table 1-5), Table 1-5. Comparison of Payment to You Versus Direct RolloverCompleted after 60-day period, Rollovers completed after the 60-day period.Conduit IRAs, IRA as a holding account (conduit IRA) for rollovers to other eligible plans.Direct rollover option, Direct rollover option.Extension of period, Extension of rollover period.From bond purchase plan, Rollover from bond purchase plan.From employer's plan into a Roth IRA, Rollover From Employer's Plan Into a Roth IRAFrom employer's plan into an IRA, Rollover From Employer's Plan Into an IRAFrom Keogh plans, Keogh plans and rollovers.From one IRA into another, Rollover From One IRA Into AnotherFrom Roth IRAs, Rollover From a Roth IRAFrom traditional IRA, Kinds of rollovers from a traditional IRA.Inherited IRAs, Inherited IRAs.Nonspouse beneficiary, Rollover by nonspouse beneficiary.Notice, Rollover notice.Partial, Partial rollovers., Partial rollover.Tax treatment of rollover from traditional IRA to eligible retirement plan other than an IRA, Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA.Time limit, Time Limit for Making a Rollover ContributionTo Roth IRAs, Conversion methods.To traditional IRA, Kinds of rollovers to a traditional IRA.Waiting period between, Waiting period between rollovers., No waiting period between rollovers.Withholding (see Withholding)Roth IRAs, Roth IRAsAge limit, Is there an age limit for contributions?Contribution limit reduced, Contribution limit reduced.Contributions, Can You Contribute to a Roth IRA?, Applying excess contributions.Timing of, When Can You Make Contributions?To traditional IRAs and to Roth IRAs, Roth IRAs and traditional IRAs.Conversion, Converting From Any Traditional IRA Into a Roth IRA, Conversion by rollover from traditional to Roth IRA., ConversionsDefined, What Is a Roth IRA?Excess contributions, What if You Contribute Too Much?Modified AGIEffect on contribution amount (Table 2-1), Table 2-1. Effect of Modified AGI on Roth IRA ContributionFiguring (Worksheet 2-1), Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA PurposesRollovers from, Rollover From a Roth IRASetting up, When Can a Roth IRA Be Opened?Spouse, Can you contribute to a Roth IRA for your spouse?Traditional IRAs converted into, Converting From Any Traditional IRA Into a Roth IRASSection 501(c)(18) plan, General Limit, Kay Bailey Hutchison Spousal IRA LimitSelf-certification, How do you self-certify that you qualify for a waiver?Self-employed personsDeductible contributions, Self-employed.Income of, Self-employment income.Separated taxpayersFiling status of, Lived apart from spouse.Servicemembers group life insurance, Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) PaymentsServices received at reduced or no cost, Services received at reduced or no cost.SIMPLE IRAs, SIMPLE IRAsTraditional IRA, mistakenly moved to, Traditional IRA mistakenly moved to SIMPLE IRA.Simplified employee pensions (SEPs), Simplified Employee Pension (SEP)Social Security recipients, Social Security RecipientsSpousal IRAs (see Kay Bailey Hutchison Spousal IRAs or Inherited IRAs)StudentsRetirement savings contributions credit, Full-time student.Surviving spouseRollovers by, Distributions received by a surviving spouse.TTablesModified AGIEmployer retirement plan coverage and deduction (Table 1-2), Table 1-2. Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work No employer retirement plan coverage and deduction (Table 1-3), Table 1-3. Effect of Modified AGI1 on Deduction if You Aren’t Covered by a Retirement Plan at Work Roth IRAs, effect on contribution (Table 2-1), Table 2-1. Effect of Modified AGI on Roth IRA ContributionRollover vs. direct payment to taxpayer (Table 1-5), Table 1-5. Comparison of Payment to You Versus Direct RolloverUsing this publication (Table I-1), Table I-1. Using This PublicationTax advantages of IRAs, What are some tax advantages of an IRA?Tax creditsRetirement savings contributions credit, Retirement Savings Contributions Credit (Saver's Credit), How to figure and report the credit.Tax help, How To Get Tax HelpTax year, Tax year.Tax-sheltered annuitiesRollovers from, Distribution from a tax-sheltered annuity.Traditional IRAs, Traditional IRAs, Form 5329 not required.Contribution limits, How Much Can Be Contributed?, More Than Maximum ContributionsContributions, How Much Can Be Contributed?, More Than Maximum ContributionsDue date, Contributions must be made by due date.To Roth IRAs and to traditional IRAs, Roth IRAs and traditional IRAs.Converting into Roth IRA, Converting From Any Traditional IRA Into a Roth IRACost basis, Cost basis.Deductions, How Much Can You Deduct?, Examples—Worksheet for Reduced IRA Deduction for 2021Defined,Disclosures, Required DisclosuresExcess contributions, Excess ContributionsInherited IRAs, What if You Inherit an IRA?, More information.Loss of IRA status, Loss of IRA status.Mistakenly moved to SIMPLE IRA, Traditional IRA mistakenly moved to SIMPLE IRA.Recordkeeping, Nondeductible ContributionsReduced IRA deduction for 2021, Examples—Worksheet for Reduced IRA Deduction for 2021Rollovers (see Rollovers)Setting up, Who Can Open a Traditional IRA?, Required DisclosuresSocial Security recipients, Social Security RecipientsTransfers, Can You Move Retirement Plan Assets?Types of, Kinds of traditional IRAs.Withdrawing or using assets, When Can You Withdraw or Use Assets?, Excess Contributions TaxTransfers, Can You Move Retirement Plan Assets?Divorce, Transfers Incident to DivorceTo Roth IRAs, Transfers to Roth IRAs., Can You Move Amounts Into a Roth IRA?Trustee to trustee, Trustee-to-Trustee Transfer, Conversion methods.Trustee-to-trustee transfers, Trustee-to-Trustee TransferTo Roth IRAs, Conversion methods.Trustees' fees, Trustees' fees., Trustees' fees.Page Last Reviewed or Updated: 22-Feb-2022 How do I report a withdrawal of excess Roth IRA contributions TurboTax?Login to your TurboTax Account.. Click on "Search" on the top right and type “IRA contributions”. Click on “Jump to IRA contributions". Select “Roth IRA”. Continue until "Do You Have any Excess Roth Contributions" screen and answer "Yes". Verify/ Enter the amount on the "Enter Excess Contributions" screen.. How do I correct excess Roth IRA contributions?You have a few options if you discover an excess contribution after you file your taxes:. Contact your plan administrator and file an amended tax return. ... . Carry the excess forward to the new tax year. ... . Roth IRA option: Move the excess to a traditional IRA. ... . Do nothing and pay 6% on the excess every year.. How do I report excess Roth IRA contributions from prior year?If your total IRA contributions (both Traditional and Roth combined) are greater than the allowed amount for the year in your situation, and you have not withdrawn the excess contributions, you must complete Form 5329 to calculate a 6% penalty tax on the excess contribution.
Can you withdraw excess Roth IRA contributions?If you discover the contribution error prior to filing your tax return, the most common fix is to withdraw the excess contribution amount plus EARNINGS by your tax filing deadline, April 18th. Custodians typically have a special form for removing excess contributions from your Roth IRA that you will need to complete.
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