Did you put money into an IRA this year? What about a Roth IRA? Watch this video to answer your questions about retirement savings and how they affect your taxes.
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Hello, I’m Tammy from TurboTax with some information for taxpayers who put money into an individual retirement arrangement.
Did you put money aside for your retirement this year into an IRA account?
If you did, you may be able to deduct some of those contributions on your federal tax return. When you make contributions to an IRA, it’s likely that you will receive a Form 5498 from the organization that manages your retirement account. It may appear to be confusing at first, but for purposes of figuring out your deduction—you don’t need to focus on every piece of information reported on the form. But before we even get to the important boxes on your 5498, you should first understand the difference between a traditional IRA and a Roth IRA.
With a traditional IRA,a certain amount of the contributions you make each year may be tax deductible. However, when you reach retirement age, you must report all IRA withdrawals on your tax return and pay the tax on it.
With a Roth IRA it’s the opposite. Your contributions aren’t deductible on your tax return, but the tax savings come later. This type of account allows you to make contributions using after-tax dollars— meaning that you already paid tax on the money you use to make the contribution. But when you start making withdrawals during retirement, those withdrawals are tax free and you don’t have to pay taxes on them.
Keeping the differences between the IRAs in mind, you will be most interested in the amounts reported in boxes 1 and 10 of your Form 5498. Box 1 reports the total amount of contributions you made to a traditional IRA— which might be deductible on your tax return, depending on other factors, like your income. The amount in box 10, however, reports the contributions you made to a Roth IRA, so you can’t deduct this amount.
Your 5498 will also report other types of information, which may or may not be important for purposes of filing your tax return this year. This includes the fair market value of your retirement account, amounts you convert or rollover from one type of retirement account to another and information about minimum distributions you must take from the account in order to avoid excessive taxes.
Remember, when you use TurboTax to file your tax return, we’ll ask you simple questions and let you know exactly how much, if any, of your retirement contributions are tax deductible.