Publication 17
taxmap/pub17/p17-091.htm#en_us_publink1000172558taxmap/pub17/p17-091.htm#en_us_publink1000248477Due date for contributions and withdrawals.(p120)
Contributions can be made to your 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. Because Emancipation Day, Saturday, April 16, 2011, a
legal holiday in the District of Columbia, will be observed on Friday, April 15,
2011, the due date for making contributions for 2010 to your IRA is April 18,
2011. See
When Can Contributions Be Made?There is a 6% excise tax on excess contributions not withdrawn
by the due date (including extensions) for your return. You will not have to pay
the 6% tax if any 2010 excess contributions are withdrawn by the due date of
your return (including extensions). See
Excess Contributions under
What Acts Result in Penalties or Additional Taxes?
Modified AGI limit for traditional IRA contributions increased.(p120)
For 2010, if you were covered by a retirement plan at work, your
deduction for contributions to a traditional IRA is reduced (phased out) if your
modified AGI is:
- More than $89,000 but less than $109,000 for a married couple
filing a joint return or a qualifying widow(er),
- More than $56,000 but less than $66,000 for a single individual
or head of household, or
- Less than $10,000 for a married individual filing a separate
return.
If you either lived with your spouse or file a joint return,
and your spouse was covered by a retirement plan at work, but you were not, your
deduction is phased out if your modified AGI is more than $167,000 but less than
$177,000. If your modified AGI is $177,000 or more, you cannot take a deduction
for contributions to a traditional IRA. See
How Much Can You Deduct? later.
Modified AGI limit for Roth IRA contributions increased.(p120)
For 2010, your Roth IRA contribution limit is reduced (phased
out) in the following situations.
- Your filing status is married filing jointly or qualifying
widow(er) and your modified AGI is at least $167,000. You cannot make a Roth IRA
contribution if your modified AGI is $177,000 or more.
- Your filing status is single, head of household, or married
filing separately and you did not live with your spouse at any time in 2010 and
your modified AGI is at least $105,000. You cannot make a Roth IRA contribution
if your modified AGI is $120,000 or more.
- Your filing status is married filing separately, you lived
with your spouse at any time during the year, and your modified AGI is more than
-0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or
more.
See
Can You Contribute to a Roth IRA? later.
Conversions to Roth IRAs.(p120)
The modified AGI and filing status requirements for converting
a traditional IRA to a Roth IRA are eliminated.
Also, for any 2010 rollover from an IRA other than a Roth IRA
to a Roth IRA, any amounts that would be included as income will be included in
income in equal amounts in 2011 and 2012. You can choose to include the entire
amount in income in 2010.
taxmap/pub17/p17-091.htm#en_us_publink1000202633Catch-up contributions in certain employer bankruptcies.(p120)
The provision for additional catch-up contributions in certain
employer bankruptcies does not apply for 2010 or later years.
taxmap/pub17/p17-091.htm#en_us_publink1000202634Qualified charitable distributions (QCDs).(p120)
The provision for tax-free distributions from IRAs for charitable
purposes does not apply for 2010 or later years.
 | At the time this publication went to print, Congress was
considering legislation that would extend qualified charitable distributions
from IRAs. To find out if this legislation was enacted, and for more details, go
to
www.irs.gov/formspubs. |
taxmap/pub17/p17-091.htm#en_us_publink1000252731Modified AGI limit for traditional IRA contributions increased.(p120)
For 2011, 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:
- More than $90,000 but less than $110,000 for a married couple
filing a joint return or a qualifying widow(er),
- More than $56,000 but less than $66,000 for a single individual
or head of household, or
- Less than $10,000 for a married individual filing a separate
return.
If you either live with your spouse or file a joint return, and
your spouse is covered by a retirement plan at work, but you are not, your
deduction is phased out if your modified AGI is more than $169,000 but less than
$179,000. If your modified AGI is $179,000 or more, you cannot take a deduction
for contributions to a traditional IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000252732Modified AGI limit for Roth IRA contributions increased.(p120)
For 2011, your Roth IRA contribution limit is reduced (phased
out) in the following situations.
- Your filing status is married filing jointly or qualifying
widow(er) and your modified AGI is at least $169,000. You cannot make a Roth IRA
contribution if your modified AGI is $179,000 or more.
- Your filing status is single, head of household, or married
filing separately and you did not live with your spouse at any time in 2011 and
your modified AGI is at least $107,000. You cannot make a Roth IRA contribution
if your modified AGI is $122,000 or more.
- Your filing status is married filing separately, you lived
with your spouse at any time during the year, and your modified AGI is more than
-0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or
more.
Contributions to both traditional and Roth IRAs.(p120)
For information on your combined contribution limit if you contribute to both
traditional and Roth IRAs, see
Roth IRAs and traditional IRAs under
How Much Can Be Contributed? later.
Statement of required minimum distribution.(p120)
If a minimum distribution is required from your IRA, the trustee,
custodian, or issuer that held the IRA at the end of the preceding year must
either report the amount of the required minimum distribution to you, or offer
to calculate it for you. The report or offer must include the date by which the
amount must be distributed. The report is due January 31 of the year in which
the minimum distribution is required. It can be provided with the year-end fair
market value statement that you normally get each year. No report is required
for IRAs of owners who have died.
taxmap/pub17/p17-091.htm#en_us_publink1000172585IRA interest.(p120)
Although interest earned from your IRA is generally not taxed
in the year earned, it is not tax-exempt interest. Tax on your traditional IRA
is generally deferred until you take a distribution. Do not report this interest
on your tax return as tax-exempt interest.
taxmap/pub17/p17-091.htm#en_us_publink1000172586
To designate contributions as nondeductible, you must file Form 8606,
Nondeductible IRAs.
taxmap/pub17/p17-091.htm#en_us_publink1000202636Disaster-related tax relief.(p120)
Special rules apply to the use of retirement funds (including
IRAs) by qualified individuals who suffered an economic loss as a result of:
- The storms that began on May 4, 2007, in the Kansas disaster
area, or
- The severe storms in the Midwestern disaster areas in 2008.
For more information on these special rules see
Tax Relief for Kansas Disaster Area and
Tax Relief for Midwestern Disaster Areas in chapter 4 of Publication 590.
 | The term "50 or older" is used several times in this chapter.
It refers to an IRA owner who is age 50 or older by the end of the tax year. |
taxmap/pub17/p17-091.htm#TXMP4e8498a7
An individual retirement arrangement (IRA) is a personal savings plan that gives
you tax advantages for setting aside money for your retirement.
This chapter discusses the following topics.
- The rules for a traditional IRA (any IRA that is not a Roth
or SIMPLE IRA).
- The Roth IRA, which features nondeductible contributions and
tax-free distributions.
Simplified Employee Pensions (SEPs) and Savings Incentive Match
Plans for Employees (SIMPLEs) are not discussed in this chapter. For more
information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part
of these plans, see Publications 560 and 590.
For information about contributions, deductions, withdrawals,
transfers, rollovers, and other transactions for 2011, see Publication 590.
taxmap/pub17/p17-091.htm#TXMP61693516Useful items
You may want to see:
Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329:
Additional Taxes on Qualified Plans (including IRAs) and Other
Tax-Favored Accounts 8606:
Nondeductible IRAs taxmap/pub17/p17-091.htm#en_us_publink1000172589In this chapter the original IRA (sometimes called an ordinary
or regular IRA) is referred to as a "traditional IRA." A traditional IRA is any
IRA that is not a Roth IRA or a SIMPLE IRA.Two advantages of a traditional IRA
are:
- You may be able to deduct some or all of your contributions
to it, depending on your circumstances, and
- Generally, amounts in your IRA, including earnings and gains,
are not taxed until they are distributed.
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, and
- You were not age 701/2 by the end of the year.
Generally, compensation is what you earn from working. Compensation
includes wages, salaries, tips, professional fees, bonuses, and other amounts
you receive for providing personal services. 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).
Scholarship and fellowship payments are compensation for this
purpose only if shown in box 1 of Form W-2.
Compensation also includes commissions and taxable alimony and
separate maintenance payments.
taxmap/pub17/p17-091.htm#en_us_publink1000172593If 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:
- The deduction for contributions made on your behalf to retirement
plans, and
- The deduction allowed for one-half of your self-employment
taxes.
Compensation includes earnings from self-employment even if they
are not subject to self-employment tax because of your religious beliefs.
taxmap/pub17/p17-091.htm#en_us_publink1000172594For IRA purposes, if you were a member of the U.S. Armed Forces,
your compensation includes any nontaxable combat pay you receive.
taxmap/pub17/p17-091.htm#en_us_publink1000172595Compensation does not include any of the following items.
- Earnings and profits from property, such as rental income,
interest income, and dividend income.
- Pension or annuity income.
- Deferred compensation received (compensation payments postponed
from a past year).
- Income from a partnership for which you do not provide services
that are a material income-producing factor.
- Conservation Reserve Program (CRP) payments reported on Schedule
SE (Form 1040), line 1(b).
- Any amounts (other than combat pay) you exclude from income,
such as foreign earned income and housing costs.
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.
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.
taxmap/pub17/p17-091.htm#en_us_publink1000172598Your traditional IRA can be an individual retirement account
or annuity. It can be part of either a simplified employee pension (SEP) or an
employer or employee association trust account.
taxmap/pub17/p17-091.htm#en_us_publink1000172599There are limits and other rules that affect the amount that
can be contributed to a traditional IRA. These limits and other rules are
explained below.
taxmap/pub17/p17-091.htm#en_us_publink1000172600Except as discussed later under
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 paid in connection with your traditional
IRA are subject to the contribution limit.
taxmap/pub17/p17-091.htm#en_us_publink1000172603Trustees' administrative fees are not subject to the contribution
limit.
taxmap/pub17/p17-091.htm#en_us_publink1000172604If you are (or 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 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 similar arrangement.
For more information, see
Qualified reservist repayments under
How Much Can Be Contributed? in chapter 1 of Publication 590.
| Contributions on your behalf to a traditional IRA reduce
your limit for contributions to a Roth IRA. (See
Roth IRAs, later.) |
taxmap/pub17/p17-091.htm#en_us_publink1000172607For 2010, the most that can be contributed to your traditional
IRA generally is the smaller of the following amounts.
- $5,000 ($6,000 if you are 50 or older).
- Your taxable compensation (defined earlier) for the year.
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 do not affect this
limit.
Betty, who is 34 years old and single, earned $24,000 in 2010.
Her IRA contributions for 2010 are limited to $5,000.
taxmap/pub17/p17-091.htm#en_us_publink1000172610John, an unmarried college student working part time, earned
$3,500 in 2010. His IRA contributions for 2010 are limited to $3,500, the amount
of his compensation.
taxmap/pub17/p17-091.htm#en_us_publink1000172612For 2010, 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 amounts.
- $5,000 ($6,000 if you are 50 or older).
- The total compensation includible in the gross income of both
you and your spouse for the year, reduced by the following two amounts.
- Your spouse's IRA contribution for the year to a traditional
IRA.
- Any contribution for the year to a Roth IRA on behalf of
your spouse.
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 $10,000
($11,000 if only one of you is 50 or older, or $12,000 if both of you are 50 or
older).
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 cannot be contributed.
taxmap/pub17/p17-091.htm#en_us_publink1000172614Contributions 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172616Contributions cannot be made to your traditional IRA for the
year in which you reach age 701/2 or for any later year.
You attain age 701/2
on the date that is 6 calendar months after the 70th anniversary of your birth.
If you were born on or before June 30, 1940, you cannot contribute for 2010 or
any later year.
taxmap/pub17/p17-091.htm#en_us_publink1000172617If an amount is contributed to your traditional IRA between January
1 and April 18, you should tell the sponsor which year (the current year or the
previous year) the contribution is for. If you do not 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).
taxmap/pub17/p17-091.htm#en_us_publink1000172618You 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172619You do not have to contribute to your traditional IRA for every
tax year, even if you can.
taxmap/pub17/p17-091.htm#en_us_publink1000172620Generally, you can deduct the lesser of:
- The contributions to your traditional IRA for the year, or
- The general limit (or the spousal IRA limit, if it applies).
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 eligible to claim a credit for contributions to
your traditional IRA. For more information, see
chapter 37. |
taxmap/pub17/p17-091.htm#en_us_publink1000172623Trustees' administrative fees that are billed separately and
paid in connection with your traditional IRA are not deductible as IRA
contributions. However, they may be deductible as a miscellaneous itemized
deduction on Schedule A (Form 1040). See
chapter 28.
Brokers' commissions are part of your IRA contribution and, as
such, are deductible subject to the limits.
taxmap/pub17/p17-091.htm#en_us_publink1000172625If 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 traditional IRAs of up to the lesser of:
- $5,000 ($6,000 if you are 50 or older in 2010).
- 100% of your compensation.
This limit is reduced by any contributions made to a 501(c)(18)
plan on your behalf.
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 the following
amounts.
- $5,000 ($6,000 if you are 50 or older in 2010).
- The total compensation includible in the gross income of both
spouses for the year reduced by the following three amounts.
- The IRA deduction for the year of the spouse with the greater
compensation.
- Any designated nondeductible contribution for the year made
on behalf of the spouse with the greater compensation.
- Any contributions for the year to a Roth IRA on behalf of
the spouse with the greater compensation.
This limit is reduced by any contributions to a 501(c)(18) plan
on behalf of the spouse with the lesser compensation.
Note.If you were divorced or legally separated (and did not remarry)
before the end of the year, you cannot deduct any contributions to your spouse's
IRA. After a divorce or legal separation, you can deduct only contributions to
your own IRA. Your deductions are subject to the rules for single individuals.
taxmap/pub17/p17-091.htm#en_us_publink1000172628If 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 do not affect the amount
that can be contributed. See
Nondeductible Contributions, later.
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.
If you are not certain whether you were covered by your employer's
retirement plan, you should ask your employer.
taxmap/pub17/p17-091.htm#en_us_publink1000172633For purposes of the IRA deduction, federal judges are covered
by an employer retirement plan.
taxmap/pub17/p17-091.htm#en_us_publink1000172634Special 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172635Your 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172636Generally, 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.
A defined contribution plan is a plan that provides for a separate
account for each person covered by the plan. Types of defined contribution plans
include profit-sharing plans, stock bonus plans, and money purchase pension
plans.
taxmap/pub17/p17-091.htm#en_us_publink1000172637If 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:
- Declined to participate in the plan,
- Did not make a required contribution, or
- Did not perform the minimum service required to accrue a benefit
for the year.
A defined benefit plan is any plan that is not a defined contribution
plan. Defined benefit plans include pension plans and annuity plans.
taxmap/pub17/p17-091.htm#en_us_publink1000172638If 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172639Unless you are covered under another employer plan, you are not
covered by an employer plan if you are in one of the situations described below.
taxmap/pub17/p17-091.htm#en_us_publink1000172640Coverage under social security or railroad retirement is not
coverage under an employer retirement plan.
taxmap/pub17/p17-091.htm#en_us_publink1000172641If you receive retirement benefits from a previous employer's
plan, you are not covered by that plan.
taxmap/pub17/p17-091.htm#en_us_publink1000172642If 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 are not covered by the plan if both of the following conditions are
met.
- The plan you participate in is established for its employees
by:
- The United States,
- A state or political subdivision of a state, or
- An instrumentality of either (a) or (b) above.
- You did not serve more than 90 days on active duty during
the year (not counting duty for training).
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 are not covered
by the plan if both of the following conditions are met.
- The plan you participate in is established for its employees
by:
- The United States,
- A state or political subdivision of a state, or
- An instrumentality of either (a) or (b) above.
- Your accrued retirement benefits at the beginning of the year
will not provide more than $1,800 per year at retirement.
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.
taxmap/pub17/p17-091.htm#en_us_publink1000172649Instead of using
Table 17-1 or
Table 17-2, use the worksheets in Appendix B of Publication 590 if, for
the year, all of the following apply.
- You received social security benefits.
- You received taxable compensation.
- Contributions were made to your traditional IRA.
- You or your spouse was covered by an employer retirement plan.
Use those worksheets to figure your IRA deduction, your nondeductible
contribution, and the taxable portion, if any, of your social security benefits.
If you were covered by an employer retirement plan and you did
not 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 17-1.
taxmap/pub17/p17-091.htm#en_us_publink1000172654
Table 17-1. Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work
If you are covered by a retirement plan at work, use this table
to determine if your modified AGI affects the amount of your deduction.
| IF your filing status is... | | AND your modified AGI is... | | THEN you can take... |
|---|
single
or
head of household | | $56,000 or less | | a full deduction. |
| | more than $56,000
but less than $66,000
| | a partial deduction. |
| | $66,000 or more | | no deduction. |
married filing jointly
or
qualifying widow(er) | | $89,000 or less | | a full deduction. |
| | more than $89,000
but less than $109,000
| | a partial deduction. |
| | $109,000 or more | | no deduction. |
| married filing separately2 | | less than $10,000 | | a partial deduction. |
| | $10,000 or more | | no deduction. |
| 1Modified AGI (adjusted gross income). See
Modified adjusted gross income (AGI).
|
| 2If you did not live with your spouse at any time during
the year, your filing status is considered Single for this purpose (therefore,
your IRA deduction is determined under the "Single" column).
|
If you are not covered by an employer retirement plan, but your
spouse is, and you did not 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 17-2.
taxmap/pub17/p17-091.htm#en_us_publink1000172660
Table 17-2. Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at
Work
If you are not covered by a retirement plan at work, use this
table to determine
if your modified AGI affects the amount of your deduction.
| IF your filing status is... | | AND your modified AGI is... | | THEN you can take... |
|---|
single,
head of household, or
qualifying widow(er) | | any amount | | a full deduction. |
| married filing jointly or
separately with a spouse who
is not covered by a plan at work
| | any amount | | a full deduction. |
| married filing jointly with a spouse who
is covered by a plan at work
| | $167,000 or less | | a full deduction. |
| | more than $167,000
but less than $177,000
| | a partial deduction. |
| | $177,000 or more | | no deduction. |
| married filing separately with a spouse who
is covered by a plan at work2 | | less than $10,000 | | a partial deduction. |
| | $10,000 or more | | no deduction. |
| 1Modified AGI (adjusted gross income). See
Modified adjusted gross income (AGI).
|
| 2You are entitled to the full deduction if you did not live
with your spouse at any time during the year.
|
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
chapter 2.
If you did not live with your spouse at any time during the year
and you file a separate return, your filing status, for this purpose, is single.
taxmap/pub17/p17-091.htm#en_us_publink1000172667How you figure your modified AGI depends on whether you are filing
Form 1040 or Form 1040A. If you made contributions to your IRA for 2010 and
received a distribution from your IRA in 2010, see Publication 590.
| Do not 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. |
taxmap/pub17/p17-091.htm#en_us_publink1000172669If you file Form 1040, refigure the amount on the page 1 "adjusted
gross income" line without taking into account any of the following amounts.
- IRA deduction.
- Student loan interest deduction.
- Domestic production activities deduction.
- Foreign earned income exclusion.
- Foreign housing exclusion or deduction.
- Exclusion of qualified savings bond interest shown on Form
8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After
1989 (For Filers With Qualified Higher Education Expenses).
- Exclusion of employer-provided adoption benefits shown on
Form 8839, Qualified Adoption Expenses.
This is your modified AGI.
| At the time this publication went to print, Congress was
considering legislation that would extend the deduction for tuition and fees. To
find out if this legislation was enacted, and for more details, go to
www.irs.gov/formspubs. |
taxmap/pub17/p17-091.htm#en_us_publink1000172670If you file Form 1040A, refigure the amount on the page 1 "adjusted
gross income" line without taking into account any of the following amounts.
- IRA deduction.
- Student loan interest deduction.
- Exclusion of qualified savings bond interest shown on Form
8815.
This is your modified AGI.
| At the time this publication went to print, Congress was
considering legislation that would extend the deduction for tuition and fees. To
find out if this legislation was enacted, and for more details, go to
www.irs.gov/formspubs. |
taxmap/pub17/p17-091.htm#en_us_publink1000172671If all three of the following apply, any IRA distributions you
received in 2010 may be partly tax free and partly taxable.
- You received distributions in 2010 from one or more traditional
IRAs.
- You made contributions to a traditional IRA for 2010.
- Some of those contributions may be nondeductible contributions.
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 1-5, Figuring the Taxable Part of Your IRA
Distribution, in Publication 590.
If at least one of the above does not apply, figure your modified
AGI using
Worksheet 17-1 on this page.
You can figure your reduced IRA deduction for either Form 1040
or Form 1040A by using the worksheets in chapter 1 of Publication 590. Also, the
instructions for Form 1040 and Form 1040A include similar worksheets that you
may be able to use instead.
taxmap/pub17/p17-091.htm#en_us_publink1000172674If you file Form 1040, enter your IRA deduction on line 32 of
that form. If you file Form 1040A, enter your IRA deduction on line 17. You
cannot deduct IRA contributions on Form 1040EZ.
taxmap/pub17/p17-091.htm#en_us_publink1000172675 |
Worksheet 17-1. Figuring Your Modified AGI
Use this worksheet to figure your modified adjusted gross
income for traditional IRA purposes.
| 1. | Enter your adjusted gross income (AGI) from Form 1040,
line 38, or Form 1040A, line 22, figured without taking into account the amount
from Form 1040, line 32, or Form 1040A, line 17
| 1. | | | 2. | Enter any student loan interest deduction from Form 1040,
line 33, or Form 1040A, line 18 | 2. | | | 3. | Enter any domestic production activities deduction from
Form 1040, line 35 | 3. | | | 4. | Enter any foreign earned income and/or housing exclusion
from Form 2555, line 45, or Form 2555-EZ, line 18 | 4. | | | 5. | Enter any foreign housing deduction from Form 2555, line
50 | 5. | | | 6. | Enter any excludable savings bond interest from Form
8815, line 14 | 6. | | | 7. | Enter any excluded employer-provided adoption benefits
from Form 8839, line 26 | 7. | | | 8. | Add lines 1 through 7. This is your
Modified AGI for traditional IRA purposes
| 8. |
|
|
Although your deduction for IRA contributions may be reduced
or eliminated, contributions can be made to your IRA up to the general limit or,
if it applies, the spousal IRA limit. The difference between your total
permitted contributions and your IRA deduction, if any, is your nondeductible
contribution.
taxmap/pub17/p17-091.htm#en_us_publink1000172678Mike is 28 years old and single. In 2010, he was covered by a
retirement plan at work. His salary was $57,312. His modified AGI was $68,000.
Mike made a $5,000 IRA contribution for 2010. Because he was covered by a
retirement plan and his modified AGI was over $66,000, he cannot deduct his
$5,000 IRA contribution. He must designate this contribution as a nondeductible
contribution by reporting it on Form 8606, as explained next.
taxmap/pub17/p17-091.htm#en_us_publink1000172679To designate contributions as nondeductible, you must file Form
8606.
You do not 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.
You must file Form 8606 to report nondeductible contributions
even if you do not have to file a tax return for the year.
| A Form 8606 is not 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, later. |
taxmap/pub17/p17-091.htm#en_us_publink1000172682If you do not report nondeductible contributions, all of the
contributions to your traditional IRA will be treated as deductible
contributions when withdrawn. All distributions from your IRA will be taxed
unless you can show, with satisfactory evidence, that nondeductible
contributions were made.
taxmap/pub17/p17-091.htm#en_us_publink1000172683If 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172684You will have to pay a $50 penalty if you do not file a required
Form 8606, unless you can prove that the failure was due to reasonable cause.
taxmap/pub17/p17-091.htm#en_us_publink1000172685As 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. See
When Can You Withdraw or Use IRA Assets, later.
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.
taxmap/pub17/p17-091.htm#en_us_publink1000172688If 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172689If you inherit a traditional IRA from your spouse, you generally
have the following three choices. You can:
- Treat it as your own IRA by designating yourself as the account
owner.
- Treat it as your own by rolling it over into your IRA, or
to the extent it is taxable, into a:
- Qualified employer plan,
- Qualified employee annuity plan (section 403(a) plan),
- Tax-sheltered annuity plan (section 403(b) plan), or
- Deferred compensation plan of a state or local government
(section 457 plan).
- Treat yourself as the beneficiary rather than treating the
IRA as your own.
You will be considered to have chosen to treat the IRA as your
own if:
- Contributions (including rollover contributions) are made
to the inherited IRA, or
- You do not take the required minimum distribution for a year
as a beneficiary of the IRA.
You will only be considered to have chosen to treat the IRA
as your own if:
- You are the sole beneficiary of the IRA, and
- You have an unlimited right to withdraw amounts from it.
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 is not a required distribution, even if
you are not the sole beneficiary of your deceased spouse's IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000172691If you inherit a traditional IRA from anyone other than your
deceased spouse, you cannot treat the inherited IRA as your own. This means that
you cannot make any contributions to the IRA. It also means you cannot 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.
For more information, see the discussion of
inherited IRAs under
Rollover From One IRA Into Another,
later.
You can transfer, tax free, assets (money or property) from other
retirement plans (including traditional IRAs) to a traditional IRA. You can make
the following kinds of transfers.
- Transfers from one trustee to another.
- Rollovers.
- Transfers incident to a divorce.
Under certain conditions, you can move assets from a traditional
IRA or from a designated Roth account to a Roth IRA. You can also move assets
from a qualified retirement plan to a Roth IRA. See
Can You Move Amounts Into a Roth IRA? under
Roth IRAs, later.
A transfer of funds in your traditional IRA from one trustee
directly to another, either at your request or at the trustee's request, is not
a rollover. Because there is no distribution to you, the transfer is tax free.
Because it is not a rollover, it is not affected by the 1-year waiting period
required between rollovers, discussed later under
Rollover From One IRA Into Another. For information about direct transfers to IRAs from retirement
plans other than IRAs, see Publication 590.
Generally, a rollover is a tax-free distribution to you of cash or other assets
from one retirement plan that you contribute (roll over) to another retirement
plan. 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172700You can roll over amounts from the following plans into a traditional
IRA:
- A traditional IRA,
- An employer's qualified retirement plan for its employees,
- A deferred compensation plan of a state or local government
(section 457 plan), or
- A tax-sheltered annuity plan (section 403(b) plan).
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 Fund (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 are not required to, accept such rollovers.
taxmap/pub17/p17-091.htm#en_us_publink1000172705You generally must make the rollover contribution by the 60th
day after the day you receive the distribution from your traditional IRA or your
employer's plan.
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 more information, see
Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172706If 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, special rules extend the rollover period. For
more information, see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172707For more information on rollovers, see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172708You 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 cannot deduct the amount that
you reinvest in an IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000172709Generally, if you make a tax-free rollover of any part of a distribution
from a traditional IRA, you cannot, within a 1-year period, make a tax-free
rollover of any later distribution from that same IRA. You also cannot 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172710You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free
rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You
cannot, 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.
However, the rollover from IRA-1 into IRA-3 does not prevent
you from making a tax-free rollover from IRA-2 into any other traditional IRA.
This is because you have not, within the last year, rolled over, tax free, any
distribution from IRA-2 or made a tax-free rollover into IRA-2.
taxmap/pub17/p17-091.htm#en_us_publink1000172711For an exception for distributions from failed financial institutions,
see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172712If 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.
Amounts that must be distributed during a particular year under
the required distribution rules (discussed later) are not eligible for rollover
treatment.
taxmap/pub17/p17-091.htm#en_us_publink1000172715If you inherit a traditional IRA from your spouse, you generally
can roll it over, or you can choose to make the inherited IRA your own. See
Treating it as your own, earlier.
If you inherit a traditional IRA from someone other than your
spouse, you cannot roll it over or allow it to receive a rollover contribution.
You must withdraw the IRA assets within a certain period. For more information,
see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172718Report any rollover from one traditional IRA to the same or another
traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form
1040A.
Enter the total amount of the distribution on Form 1040, line
15a, or Form 1040A, line 11a. If the total amount on Form 1040, line 15a, or
Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or
Form 1040A, line 11b. If the total distribution was not rolled over, enter the
taxable portion of the part that was not rolled over on Form 1040, line 15b, or
Form 1040A, line 11b. Put "Rollover" next to Form 1040, line 15b, or Form 1040A,
line 11b. See the forms instructions.
If you rolled over the distribution into a qualified plan (other
than an IRA) or you make the rollover in 2011, attach a statement explaining
what you did.
taxmap/pub17/p17-091.htm#en_us_publink1000172719You can roll over into a traditional IRA all or part of an eligible
rollover distribution you receive from your (or your deceased spouse's):
- Employer's qualified pension, profit-sharing or stock bonus
plan,
- Annuity plan,
- Tax-sheltered annuity plan (section 403(b) plan), or
- Governmental deferred compensation plan (section 457 plan).
A qualified plan is one that meets the requirements of the Internal
Revenue Code.
taxmap/pub17/p17-091.htm#en_us_publink1000172720Generally, 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.
- A required minimum distribution (explained later under
When Must You Withdraw IRA Assets? (Required Minimum Distributions).
- A hardship distribution.
- Any of a series of substantially equal periodic distributions
paid at least once a year over:
- Your lifetime or life expectancy,
- The lifetimes or life expectancies of you and your beneficiary,
or
- A period of 10 years or more.
- Corrective distributions of excess contributions or excess
deferrals, and any income allocable to the excess, or of excess annual additions
and any allocable gains.
- A loan treated as a distribution because it does not satisfy
certain requirements either when made or later (such as upon default), unless
the participant's accrued benefits are reduced (offset) to repay the loan.
- Dividends on employer securities.
- The cost of life insurance coverage.
| 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, later. |
taxmap/pub17/p17-091.htm#en_us_publink1000172724A direct transfer from a deceased employee's qualified pension,
profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (section
403(b)) plan, or governmental deferred compensation (section 457) plan to an IRA
set up to receive the distribution on your behalf can be treated as an eligible
rollover distribution if you are the designated beneficiary of the plan and not
the employee's spouse. The IRA is treated as an inherited IRA. For more
information about inherited IRAs, see
Inherited IRAs, earlier.
Enter the total distribution (before income tax or other deductions were
withheld) on Form 1040, line 16a, or Form 1040A, line 12a. 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, line 16b, or Form 1040A, line 12b. Also, enter "Rollover" next to
Form 1040, line 16b, or Form 1040A, line 12b.
taxmap/pub17/p17-091.htm#en_us_publink1000172727If 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 detailed information, see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172728taxmap/pub17/p17-091.htm#en_us_publink1000248478You 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 will not apply.
taxmap/pub17/p17-091.htm#en_us_publink1000172731You cannot convert amounts that must be distributed from your
traditional IRA for a particular year (including the calendar year in which you
reach age 701/2) under the required distribution rules (discussed later).
taxmap/pub17/p17-091.htm#en_us_publink1000172732You must include in your gross income distributions from a traditional
IRA that you would have had to include in income if you had not 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.
However, for 2010 conversions any amounts you must include in income are
included in income in equal amounts in 2011 and 2012 unless you choose to
include the amounts in income in 2010. See
Special rules for 2010 conversions from IRAs to Roth IRAs
in Publication 590 for more information. You do not include in gross income any
part of a distribution from a traditional IRA that is a return of your basis, as
discussed later.
You must file Form 8606 to report 2010 conversions from traditional,
SEP, or SIMPLE IRAs to a Roth IRA in 2010 (unless you recharacterized the entire
amount) and to figure the amount to include in income.
If you must include any amount in your gross income, you may
have to increase your withholding or make estimated tax payments. See
chapter 4.
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. More detailed information is in Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172735To recharacterize a contribution, you generally must 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 year during 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.
- Include in the transfer any net income allocable to the contribution.
If there was a loss, the net income you must transfer may be a negative amount.
- Report the recharacterization on your tax return for the year
during which the contribution was made.
- Treat the contribution as having been made to the second IRA
on the date that it was actually made to the first IRA.
You cannot deduct the contribution to the first IRA. Any net
income you transfer with the recharacterized contribution is treated as earned
in the second IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000172737To 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.
- The type and amount of the contribution to the first IRA that
is to be recharacterized.
- The date on which the contribution was made to the first IRA
and the year for which it was made.
- A direction to the trustee of the first IRA to transfer in
a trustee-to-trustee transfer the amount of the contribution and any net income
(or loss) allocable to the contribution to the trustee of the second IRA.
- The name of the trustee of the first IRA and the name of the
trustee of the second IRA.
- Any additional information needed to make the transfer.
If 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172739taxmap/pub17/p17-091.htm#en_us_publink1000172741If you made IRA contributions in 2010, 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.
- You did not take a deduction for the contribution.
- You withdraw any interest or other income earned on the contribution.
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 earned on the contribution may be a negative amount.
Note.To calculate the amount you must withdraw, see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172743You 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 in 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.
|
taxmap/pub17/p17-091.htm#en_us_publink1000172746The 10% additional tax on distributions made before you reach
age 591/2
does not 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 591/2 rule, it will be subject to this tax.
taxmap/pub17/p17-091.htm#en_us_publink1000172748
You cannot keep funds in a traditional IRA indefinitely. Eventually they must be
distributed. If there are no distributions, or if the distributions are not
large enough, you may have to pay a 50% excise tax on the amount not distributed
as required. See
Excess Accumulations (Insufficient Distributions), later. The requirements for distributing IRA funds differ
depending on whether you are the IRA owner or the beneficiary of a decedent's
IRA.
The amount that must be distributed each year is referred to
as the required minimum distribution.
taxmap/pub17/p17-091.htm#en_us_publink1000172751Amounts that must be distributed (required minimum distributions)
during a particular year are not eligible for rollover treatment.
taxmap/pub17/p17-091.htm#en_us_publink1000172752If you are the owner of a traditional IRA, you must generally
start receiving distributions from your IRA by April 1 of the year following the
year in which you reach age 701/2. April 1 of the year following the year in which you reach
age 701/2 is referred to as the required beginning date.
taxmap/pub17/p17-091.htm#en_us_publink1000172753You must receive at least a minimum amount for each year starting
with the year you reach age 701/2 (your 701/2 year). If you do not (or did not) receive that minimum amount
in your 701/2 year, then you must receive distributions for your 701/2 year by April 1 of the next year.
If an IRA owner dies after reaching age 701/2, but before April 1 of the next year, no minimum distribution
is required because death occurred before the required beginning date.
| Even if you begin receiving distributions before you attain
age 701/2, you must begin calculating and receiving required minimum
distributions by your required beginning date. |
taxmap/pub17/p17-091.htm#en_us_publink1000172755The required minimum distribution for any year after the year
you turn 701/2 must be made by December 31 of that later year.
taxmap/pub17/p17-091.htm#en_us_publink1000172756If you are the beneficiary of a decedent's traditional IRA, the
requirements for distributions from that IRA generally depend on whether the IRA
owner died before or after the required beginning date for distributions.
taxmap/pub17/p17-091.htm#en_us_publink1000172757For more information, including how to figure your minimum required
distribution each year and how to figure your required distribution if you are a
beneficiary of a decedent's IRA, see Publication 590.
taxmap/pub17/p17-091.htm#en_us_publink1000172758In general, distributions from a traditional IRA are taxable
in the year you receive them.
taxmap/pub17/p17-091.htm#en_us_publink1000172759Exceptions to distributions from traditional IRAs being taxable
in the year you receive them are:
| At the time this publication went to print, Congress was
considering legislation that would extend qualified charitable distributions
from IRAs. To find out if this legislation was enacted, and for more details, go
to
www.irs.gov/formspubs. |
| Although a conversion of a traditional IRA is considered
a rollover for Roth IRA purposes, it is not an exception to the rule that
distributions from a traditional IRA are taxable in the year you receive them.
Conversion distributions are includible in your gross income subject to this
rule and the special rules for conversions explained in Publication 590. |
taxmap/pub17/p17-091.htm#en_us_publink1000172764Distributions from traditional IRAs that you include in income
are taxed as ordinary income.
taxmap/pub17/p17-091.htm#en_us_publink1000172765In figuring your tax, you cannot use the 10-year tax option or
capital gain treatment that applies to lump-sum distributions from qualified
retirement plans.
taxmap/pub17/p17-091.htm#en_us_publink1000172766Distributions from your traditional IRA may be fully or partly
taxable, depending on whether your IRA includes any nondeductible contributions.
taxmap/pub17/p17-091.htm#en_us_publink1000172767If only deductible contributions were made to your traditional
IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because
you have no basis in your IRA, any distributions are fully taxable when
received. See
Reporting taxable distributions on your return, later.
If you made nondeductible contributions or rolled over any after-tax amounts to
any of your traditional IRAs, you have a cost basis (investment in the contract)
equal to the amount of those contributions. These nondeductible contributions
are not taxed when they are distributed to you. They are a return of your
investment in your IRA.
Only the part of the distribution that represents nondeductible
contributions and rolled over after-tax amounts (your cost basis) is tax free.
If nondeductible contributions have been made or after-tax amounts have been
rolled over to your IRA, distributions consist partly of nondeductible
contributions (basis) and partly of deductible contributions, earnings, and
gains (if there are any). Until all of your basis has been distributed, each
distribution is partly nontaxable and partly taxable.
taxmap/pub17/p17-091.htm#en_us_publink1000172770You must complete Form 8606 and attach it to your return if you
receive a distribution from a traditional IRA and have ever made nondeductible
contributions or rolled over after-tax amounts to any of your traditional IRAs.
Using the form, you will figure the nontaxable distributions for 2010 and your
total IRA basis for 2010 and earlier years.
Note.If you are required to file Form 8606, but you are not required
to file an income tax return, you still must file Form 8606. Send it to the IRS
at the time and place you would otherwise file an income tax return.
taxmap/pub17/p17-091.htm#en_us_publink1000172772If you receive a distribution from your traditional IRA, you
will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc., or a similar statement.
IRA distributions are shown in boxes 1 and 2a of Form 1099-R. A number or letter
code in box 7 tells you what type of distribution you received from your IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000172773Federal income tax is withheld from distributions from traditional
IRAs unless you choose not to have tax withheld. See
chapter 4.
In general, if you are a U.S. citizen or resident alien and your
home address is outside the United States or its possessions, you cannot choose
exemption from withholding on distributions from your traditional IRA.
taxmap/pub17/p17-091.htm#en_us_publink1000172776
Report fully taxable distributions, including early distributions on Form 1040,
line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a,
or Form 1040A, line 11a). If only part of the distribution is taxable, enter the
total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable
part on Form 1040, line 15b, or Form 1040A, line 11b. You cannot report
distributions on Form 1040EZ.
taxmap/pub17/p17-091.htm#en_us_publink1000172777The tax advantages of using traditional IRAs for retirement savings
can be offset by additional taxes and penalties if you do not 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.
- Investing in collectibles.
- Making excess contributions.
- Taking early distributions.
- Allowing excess amounts to accumulate (failing to take required
distributions).
There are penalties for overstating the amount of nondeductible
contributions and for failure to file a Form 8606, if required.
taxmap/pub17/p17-091.htm#en_us_publink1000172778Generally, a prohibited transaction is any improper use of your
traditional IRA by you, your beneficiary, or any disqualified person.
Disqualified persons include your fiduciary and members of your family (spouse,
ancestor, lineal descendent, and any spouse of a lineal descendent).
The following are examples of prohibited transactions with a
traditional IRA.
- Borrowing money from it.
- Selling property to it.
- Receiving unreasonable compensation for managing it.
- Using it as security for a loan.
- Buying property for personal use (present or future) with
IRA funds.
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.
taxmap/pub17/p17-091.htm#en_us_publink1000172780If 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, earlier. The distribution may be subject to additional taxes
or penalties.
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 is not corrected.
taxmap/pub17/p17-091.htm#en_us_publink1000172783For more information on prohibited transactions, see Publication
590.
taxmap/pub17/p17-091.htm#en_us_publink1000172784If 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 later.
taxmap/pub17/p17-091.htm#en_us_publink1000172785These include:
- Artworks,
- Rugs,
- Antiques,
- Metals,
- Gems,
- Stamps,
- Coins,
- Alcoholic beverages, and
- Certain other tangible personal property.
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.
taxmap/pub17/p17-091.htm#en_us_publink1000172787Generally, an excess contribution is the amount contributed to
your traditional IRA(s) for the year that is more than the smaller of:
- The maximum deductible amount for the year. For 2010, this
is $5,000 ($6,000 if you are 50 or older), or
- Your taxable compensation for the year.
In general, if the excess contributions for a year are not 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 cannot be
more than 6% of the combined value of all your IRAs as of the end of your tax
year.
taxmap/pub17/p17-091.htm#en_us_publink1000172789You will not have to pay the 6% tax if you withdraw an excess
contribution made during a tax year and you also withdraw 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172790Do not include in your gross income an excess contribution that
you withdraw from your traditional IRA before your tax return is due if both the
following conditions are met.
- No deduction was allowed for the excess contribution.
- You withdraw the interest or other income earned on the excess
contribution.
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.
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 later.
taxmap/pub17/p17-091.htm#en_us_publink1000172792In 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.
- Total contributions (other than rollover contributions) for
2010 to your IRA were not more than $5,000 ($6,000 if you are 50 or older).
- You did not take a deduction for the excess contribution being
withdrawn.
The withdrawal can take place at any time, even after the due
date, including extensions, for filing your tax return for the year.
If you deducted an excess contribution in an earlier year for
which the total contributions were not more than the maximum deductible amount
for that year ($2,000 for 2001 and earlier years, $3,000 for 2002 through 2004
($3,500 if you were age 50 or older), $4,000 for 2005 ($4,500 if you were age 50
or older), $4,000 for 2006 or 2007 ($5,000 if you were age 50 or older), $5,000
for 2008 or 2009 ($6,000 if you were age 50 or older)), you can still remove the
excess from your traditional IRA and not include it in your gross income. To do
this, file Form 1040X for that year and do not 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.
taxmap/pub17/p17-091.htm#en_us_publink1000172794If 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. Do not include in your gross income the part of the excess
contribution caused by the incorrect information.
taxmap/pub17/p17-091.htm#en_us_publink1000172795You must include early distributions of taxable amounts from
your traditional IRA in your gross income. Early distributions are also subject
to an additional 10% tax. See the discussion of Form 5329 under
Reporting Additional Taxes, later, to figure and report the tax.
Early distributions generally are amounts distributed from your
traditional IRA account or annuity before you are age 591/2.
taxmap/pub17/p17-091.htm#en_us_publink1000172798Generally, if you are under age 591/2, you must pay a 10% additional tax on the distribution of any
assets (money or other property) from your traditional IRA. Distributions before
you are age 591/2 are called early distributions.
The 10% additional tax applies to the part of the distribution
that you have to include in gross income. It is in addition to any regular
income tax on that amount.
taxmap/pub17/p17-091.htm#en_us_publink1000172799There are several exceptions to the age 59
1/
2 rule. Even if you receive a distribution before you are age
59
1/
2, you may not have to pay the 10% additional tax if you are
in one of the following situations.
- You have unreimbursed medical expenses that are more than
7.5% of your adjusted gross income.
- The distributions are not more than the cost of your medical
insurance.
- You are disabled.
- You are the beneficiary of a deceased IRA owner.
- You are receiving distributions in the form of an annuity.
- The distributions are not more than your qualified higher
education expenses.
- You use the distributions to buy, build, or rebuild a first
home.
- The distribution is due to an IRS levy of the qualified plan.
- The distribution is a qualified reservist distribution.
Most of these exceptions are explained in Publication 590.
Note.
Distributions that are timely and properly rolled over, as discussed earlier,
are not subject to either regular income tax or the 10% additional tax. Certain
withdrawals of excess contributions after the due date of your return are also
tax free and therefore not subject to the 10% additional tax. (See
Excess contributions withdrawn after due date of return, earlier.) This also applies to transfers incident to divorce,
as discussed earlier.
taxmap/pub17/p17-091.htm#en_us_publink1000172802Early distributions (with or without your consent) from savings
institutions placed in receivership are subject to this tax unless one of the
exceptions listed earlier applies. This is true even if the distribution is from
a receiver that is a state agency.
taxmap/pub17/p17-091.htm#en_us_publink1000172803The additional tax on early distributions is 10% of the amount
of the early distribution that you must include in your gross income. This tax
is in addition to any regular income tax resulting from including the
distribution in income.
taxmap/pub17/p17-091.htm#en_us_publink1000172804The tax on early distributions does not apply to the part of
a distribution that represents a return of your nondeductible contributions
(basis).
taxmap/pub17/p17-091.htm#en_us_publink1000172805For more information on early distributions, see Publication
590.
taxmap/pub17/p17-091.htm#en_us_publink1000172806
You cannot keep amounts in your traditional IRA indefinitely. Generally, you
must begin receiving distributions by April 1 of the year following the year in
which you reach age 701/2. The required minimum distribution for any year after the year
in which you reach age 701/2 must be made by December 31 of that later year.
taxmap/pub17/p17-091.htm#en_us_publink1000172807If distributions are less than the required minimum distribution
for the year, you may have to pay a 50% excise tax for that year on the amount
not distributed as required.
taxmap/pub17/p17-091.htm#en_us_publink1000172808If the excess accumulation is due to reasonable error, and you
have taken, or are taking, steps to remedy the insufficient distribution, you
can request that the tax be waived. If you believe you qualify for this relief,
attach a statement of explanation and complete Form 5329 as instructed under
Waiver of tax in the Instructions for Form 5329.
taxmap/pub17/p17-091.htm#en_us_publink1000172809If you are unable to take required distributions because you
have a traditional IRA invested in a contract issued by an insurance company
that is in state insurer delinquency proceedings, the 50% excise tax does not
apply if the conditions and requirements of Revenue Procedure 92-10 are
satisfied.
taxmap/pub17/p17-091.htm#en_us_publink1000172810For more information on excess accumulations, see Publication
590.
taxmap/pub17/p17-091.htm#en_us_publink1000172811
Generally, you must use Form 5329 to report the tax on excess contributions,
early distributions, and excess accumulations. If you must file Form 5329, you
cannot use Form 1040A or Form 1040EZ.
taxmap/pub17/p17-091.htm#en_us_publink1000172812If you must file an individual income tax return, complete Form
5329 and attach it to your Form 1040. Enter the total additional taxes due on
Form 1040, line 58.
taxmap/pub17/p17-091.htm#en_us_publink1000172813
If you do not have to file a tax 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 your Form 1040. Be sure to include your address
on page 1 and your signature and date on page 2. Enclose, but do not attach, a
check or money order payable to the United States Treasury for the tax you owe,
as shown on Form 5329. Enter your social security number and "2010 Form 5329" on
your check or money order.
taxmap/pub17/p17-091.htm#en_us_publink1000172814You do not have to use Form 5329 if either of the following situations
exist.
- Distribution code 1 (early distribution) is correctly shown
in box 7 of Form 1099-R. If you do not owe any other additional tax on a
distribution, multiply the taxable part of the early distribution by 10% and
enter the result on Form 1040, line 58. Put "No" to the left of the line to
indicate that you do not have to file Form 5329. However, if you owe this tax
and also owe any other additional tax on a distribution, do not enter this 10%
additional tax directly on your Form 1040. You must file Form 5329 to report
your additional taxes.
- If you rolled over part or all of a distribution from a qualified
retirement plan, the part rolled over is not subject to the tax on early
distributions.
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