Two common types of IRAs are traditional IRAs and Roth IRAs. Earnings on these accounts may accrue tax-free or tax-free at a later date. In addition, you may be able to deduct traditional IRA contributions. If you contribute more than allowed to your IRA, you will be subject to a 6% excise tax on excess contribution.
Because contributions are deductible to the employer, the company's matching dollars are not reported on the W-2 form for the employee. The dollar amounts of total annual contributions are not specifically listed, but are calculated and reported by the contributor. If your income is too high to deduct contributions to a traditional IRA, you may qualify for a Roth IRA. If your modified AGI is equal to or less than the lowest phase-out amount, you can deduct your total IRA contribution.
If neither you nor your spouse actively participated in a company plan, you can deduct your traditional IRA contributions no matter how high your income is. On Form W-2 for employee compensation, contributions to SIMPLE IRA made by the employee are deducted from the schedule of wages, tips, and other compensation, and the retirement plan is selected from Box 13. SIMPLE IRAs are designed for small businesses as a way to offer a retirement savings plan to employees.
Roth iraaccounts are financed with after-tax dollars, which means you'll pay taxes when you deposit the funds. Regardless of the number of accounts you have, your total annual contributions cannot exceed the maximum allowable limit.
However, there are a number of factors that determine whether you can deduct contributions when you file your income tax returns and, if so, how much. If an employee contributes to a Roth 401 (k) account, they must record the amount contributed in Box 12. One method of conversion is to take a distribution from the traditional IRA and bring it (rollover) to a Roth IRA within 60 days of the distribution date. Box 12 of Tax Form W-2 applies to deferred contributions and there are different types of retirement benefits that are recorded in the box with different letter codes. When comparing these two options, you'll want to understand the implications and rules of Roth and Traditional IRA contributions.
If an employee contributes to a 501 (c) (1 (D) account, enter H and record the amount contributed in Box 12 and Box 1 (Wages, Tips, Compensation Amount).