Individual Retirement Arrangements (IRAs)
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
17.1 Individual Retirement Arrangements (IRAs): Distributions, Early Withdrawals, 10% Additional Tax
How do I calculate minimum the amount that must be withdrawn from
my IRA after age 70 1/2?
You will need to get Publication 590, Individual Retirement Arrangements
(IRAs) to find out this amount. Generally the minimum distribution is
computed using one of three tables found in Publication 590. Table I is used
by beneficiaries. Table II is for use by owners who have spouses who are more
than 10 years younger. Table III is generally for use by unmarried owners
and owners who have spouses who are not more than 10 years younger.
References:
If we cash in an IRA account while in our thirties, what forms do
we need to fill out?
You will need to file a Form 1040 and show the amount of withdrawal from
your IRA. Since you took the withdrawal before reaching age 59 1/2, unless
you meet certain exceptions listed in Publication 590, Individual
Retirement Arrangements (IRAs), you will need to pay an additional 10
percent tax on early distributions from qualified retirement plans that is
reported on line 57 of Form 1040. You may need to complete Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRAs) and
Other Tax-Favored Accounts, and attach it to the tax return, if required.
If you ever made nondeductible contributions to your IRA, you must complete Form 8606 (PDF), Nondeductible IRAs and Coverdell ESA's attach
it to your return. Form 8606 is used to determine if the total amount of your
distribution is tax free.
References:
- Publication 590, Individual Retirement Arrangements
(IRAs)
- Form 5329 (PDF), Additional
Taxes On Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
-
Instructions for Form 5329, Additional
Taxes On Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
- Tax Topic 451, Individual Retirement Arrangements
(IRAs)
- Tax Topic 557, Tax on Early Distributions from Traditional
and Roth IRA's.
- Form 8606 (PDF), Nondeductible
IRSs and Coverdell ESA's
If we cash in an IRA account while in our thirties, when do we pay
the taxes and penalties?
Because our tax system is a pay-as-you-go system, you may need to make
an estimated tax payment by the due date for the quarter in which you received
the distribution. When calculating your tax liability to determine whether
you need to make an estimated tax payment, your total tax for the year should
include the amount of the additional 10 percent tax on early distributions
from qualified retirement plans unless any exception applies.
You would calculate the tax on Form 1040ES (PDF), Estimated Tax for Individuals, and any 10 percent
additional tax on early distributions from qualified retirement plans on Form 5329 (PDF), Additional Taxes On Qualified Plans
(Including IRA's) and Other Tax-Favored Accounts. Any 10 percent additional
tax would go on Form 1040ES line 12 "other taxes," when completing the worksheet.
References:
- Form 1040ES (PDF), Estimated
Tax for Individuals
- Form 5329 (PDF), Additional
Taxes On Qualified Plans (Including IRA's) and Other Tax-Favored Accounts
- Publication 505, Tax Withholding and Estimated Tax
- Tax Topic 451, Individual Retirement Arrangements
(IRAs)
- Tax Topic 557, Tax on Early Distribution from Traditional
and Roth IRA's.
Can the 10% penalty for an early withdrawal from an IRA be deducted
in the Adjusted Gross Income section of Form 1040 as a penalty on early withdrawal
of savings?
No, the additional 10 percent tax on early distributions from qualified
retirement plans you pay for a premature withdrawal of an IRA does not qualify
as a penalty for withdrawal of a savings account.
References:
17.2 Individual Retirement Arrangements (IRAs): Rollovers
How long do I have to roll over a distribution from a retirement
plan to an IRA account?
You must complete the rollover by the 60th day following the day on which
you receive the distribution. (This 60-day period is extended for the period
during which the distribution is in a frozen deposit in a financial institution.)
The IRS may waive the 60 day requirement in certain situations, such as in
the event of a casualty, disaster, or other event beyond your reasonable control.
To obtain a waiver, a request for a ruling must be made and a user fee of
$90.00 will apply, See
Revenue Procedure 2003-16 (within IRS Bulletin 2003-4). A written explanation
of rollover must be given to you by the issuer making the distribution. For
information on distributions which qualify for rollover treatment, refer
to Tax Topic 413, Rollovers from Retirement Plans . For information
on the Direct Rollover Option, refer to Publication 590 Individual
Retirement Arrangement .
References:
If I can't withdraw funds penalty free from my 401(k) plan to purchase
my first home, can I roll it over into an IRA and then withdraw that money
to use as my down payment?
Yes, if you are receiving a distribution from a 401(k) that is eligible
to roll over into a IRA and you meet all of the qualifications for an IRA
distribution for a first-time homebuyer. Your plan administrator is required
to notify you before making a distribution from your 401(k) plan whether that
distribution is eligible to be rolled over into an IRA. To see if you qualify
for a distribution to be used as a first-time homebuyer, refer to Publication 590, Individual Retirement Arrangements (IRAs) .
References:
17.3 Individual Retirement Arrangements (IRAs): Roth IRA
Do I report my nondeductible Roth IRA contributions on Form 8606?
There are no forms to report a Roth contribution. The financial institution,
which is the trustee of your Roth IRA, will send you information on the amount
in your Roth IRA. They will also send the information to the Internal Revenue
Service. Use Form 8606 (PDF), Nondeductible
IRAs, if you made a nondeductible contribution to a traditional IRA;
converted from a traditional IRA, a SEP, or Simple IRA to a Roth IRA, received
a distribution from a traditional IRA, a SEP, or a Simple IRA and made nondeductible
contributions to a traditional IRA, or received a distribution from a Roth
or IRA.
References:
Can a person make a contribution to a SEP-IRA and a Roth IRA, too?
Yes, you can make a contribution to a SEP-IRA and a Roth IRA. See Publication 590, Individual Retirement Arrangements, for
the requirements to contribute to a SEP and a Roth IRA. However, your SEP
IRA contribution and Roth IRA contribution can not be made to the same IRA.
References:
17.4 Individual Retirement Arrangements (IRAs): Traditional IRA
Can an individual who is contributing to a SEP-IRA also contribute
to a traditional IRA?
Yes, if they meet certain requirements. A SEP-IRA is considered a retirement
plan, so the Adjusted Gross Income (AGI) limitations have to be considered.
If your AGI, which is computed after the SEP contribution, is in excess of
those limits, then the IRA contribution that you make would be nondeductible.
The information on the AGI limits is in Publication 590, Individual
Retirement Arrangements (IRAs) , in the section How Much Can I Deduct? Your
SEP IRA Contribution and Traditional IRA Contribution may both be made to
your SEP IRA.
References:
I want to establish a traditional individual retirement arrangement
(IRA) for my spouse, and I need additional information. What is the most I
can contribute to a spousal IRA during the tax year?
If both you and your spouse work and both have taxable compensation, each
of you can contribute up to $3,000 (or the amount of each IRA owner's compensation,
if less) to a separate traditional IRA. Even if one spouse has little or no
compensation, up to $3,000 can be contributed to each IRA if combined compensation
is at least equal to the amount contributed to both IRAs and you file a joint
return. You can contribute $3,000 to a separate IRA for your nonworking spouse
if you file a joint return. Your total contribution to both your IRA and
the spousal IRA for this year is limited to the smaller of $6,000, or your
taxable compensation reduced by any contributions you make to a traditional
IRA or Roth IRA. You cannot contribute more than $3,000 to either IRA for
the year. If you are 50 or older in 2003, the most that can be contributed
to your traditional IRA for 2003 is the lesser of:
. $3,500 (up from $2,000), or
. Your compensation that you must include in income.
For additional information, refer to Tax Topic 451, Individual
Retirement Arrangements (IRAs), or Publication 590, Individual
Retirement Arrangements (IRAs) .
References:
Can I take an IRA deduction for the amount I contributed to a 401(k)
plan last year?
No. A 401(k) plan is not an IRA. However, the amount you contributed is
not included as income in box 1 of your W-2 form so you don't pay tax on it
for 2003. For more information, refer to Tax Topic 424, 401(k) Plans, Publication 575, Pension and Annuity Income, or Publication 560, Retirement
Plans for Small Business.
References:
If I am covered by a employer sponsored retirement plan for part
of the year, but work the rest of the year for an employer without a retirement
plan, how much of my earnings may I deduct for a traditional IRA?
The amount you can deduct will be determined by your modified Adjusted
Gross Income (AGI) and filing status. For specific information refer to Publication 590, Individual Retirement Accounts (IRAs).
References:
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