If you are eligible to claim a tax deduction on your IRA contributions, you can report your IRA contributions on Form 1040, Schedule 1, Part II, Income Adjustments. Once you have calculated the amount of the tax deduction, you must record this amount on line 32 of Form 1040. Worksheets are available on Form 1040 InstructionsPDF or Publication 590-A, Contributions to Individual Retirement Agreements (PDF). The deduction is claimed on Form 1040, Schedule 1PDF.
Non-deductible contributions to a traditional IRA are reported on Form 8606, non-deductible IRASPDF. When you save for retirement with an individual retirement agreement, you will likely receive a Form 5498 each year. The institution that administers your IRA must report on the form all contributions you make to the account during the tax year. Depending on the type of IRA you have, you may need Form 5498 to report IRA contribution deductions on your tax return.
If you have a traditional Individual Retirement Account (IRA), the rules for reporting your contributions are fairly simple. You can deduct your IRA contributions on Form 1040, Schedule 1, Part II — Income Adjustments. If you need to prioritize, it often makes sense to contribute enough to your 401 (k) account to get the maximum matching contribution from your employer. But after that, adding an IRA to your retirement mix can give you more investment options and possibly lower fees than your 401 (k) charges.
This is where things get complicated. For married and jointly filing individuals, the maximum tax-deductible contribution differs significantly if a person contributes a 401 (k), and may be limited for higher-income couples. Your foundation in a traditional IRA is made up of non-deductible contributions and any after-tax funds that have been transferred from another plan. The IRA deduction for a person who is not covered by the employer-sponsored retirement plan may still be limited if their spouse has a retirement plan through their employer.
If that happens, you can claim a miscellaneous deduction subject to the 2 percent adjusted gross income limit on Schedule A; loss is not allowed if subject to the alternative minimum tax. If you prefer your earnings to grow tax-free rather than tax-deferred, you should consider re-qualifying a roth IRA. Contributions to traditional IRAs will be deductible, but if you or your spouse are covered by a retirement plan through an employer, your deduction may be limited. But even if your IRA contributions aren't deductible, you should report them on your tax return.
If you have made non-deductible contributions to your traditional IRA, you must use Form 8606 to calculate the taxable and non-taxable portion. However, contributions from any of your employees to the same plan are deducted and reported elsewhere upon return (we'll talk more about this in a moment). If you qualify to deduct them, report the amount as a traditional IRA deduction on Form 1040 or Form 1040A. In the eyes of the IRS, your contribution to a traditional IRA reduces your taxable income by that amount and, therefore, reduces the amount you owe in taxes.
Recharacterizing your traditional IRA contributions into Roth IRA contributions will not affect your tax situation in the current year. But if the main benefit of a traditional IRA (the current year's tax deduction) is no longer available, contributing to a Roth account is likely to be the best option. A Roth IRA is separate and distinct from a traditional IRA, but the concept of the basis is the same; you must track the base in your IRA to ensure that the IRS does not tax you twice on the same income. If you realize that your traditional IRA contributions are not deductible, you can do one of two things.
In fact, the ability to make a traditional IRA contribution is never affected by having too much income. .