Am I allowed to adjust my AGI for IRA contributions made in 2015?
I have made above the $100K and am a single tax payer, my employer does offer a 401k plan. I am a little unclear on the income limitations as ultimately if that deduction is not allowed, I will be taxed twice: initially when earned, and then again when I withdraw from my IRA post retirement. Can you please clear it up for me? Thank you.
It's getting close to the tax deadline. I hope you've already made any adjustments if needed.
There are a couple things you mentioned that make me wonder if you're talking about a traditional IRA or Roth IRA.
Assuming you are talking about a traditional IRA:
If you file taxes as single and your employer does not offer a retirement plan, there is no income limit for the deductible amount of a traditional IRA contribution.
If you are really talking about a Roth IRA:
There is no deduction for contributions. Instead, you are limited to the amount you can contribute based on your modified AGI. The single filing status allows a full contribution up to $116,000 (MAGI), no contribution over $131,000 (MAGI), and a reduced amount in between $116k-131k.
For both a traditional IRA and Roth IRA, the max contribution is $5,500 or $6,500 if you are age 50 or over. (for years 2015 & 2016)
Important- You are NOT taxed twice if you make non-deductible contributions to a traditional IRA. You will be taxed on the Growth of the contribution, but not what you originally contributed and were unable to deduct. There are calculations involved and IRS forms to keep, but a non-deductible traditional IRA contribution will, in fact, lower your future tax liability when withdrawing from a traditional IRA.
Hopefully a general guidance will answer your question.
1. For 2018, the income limitation for a Roth IRA contribution for a single filer starts at $120k. Once about $135k, you can’t make a Roth contribution. On the other hand, regardless of your income, you can make a non-deductible traditional IRA at any time.
2. Based on the income you expounded, $100k, you’re phased out for making a deductible IRA contribution. What that means is had your income been below $63k, you could have made a $5,500 traditional IRA contribution & been able to deduct it. However, any amount you take out from the traditional IRA at the retirement will be taxed at the future rate.
3. Reading from the item #1 & #2, you probably realize that Roth is a better option for you. You may not be able to deduct it upfront, but the money you do withdraw at the retirement time will not be taxed based on the current law.
4. Each year, the deadline for making an IRA contribution is 4/15 the following year. Thus, if you missed the 2015 contribution, you can’t go back to make it up now.
You can contribute to a Roth IRA for which you get no tax deduction, but when you withdraw the money it is completely tax-free including all gains. If you contribute to a traditional IRA then your income is too high to permit a tax deduction. However, you keep track on a form 8606 so that when the money is withdrawn later it isn't taxed since you didn't take a deduction in the first place. This form allows you to keep track of which traditional IRA contributions were deducted and which were not.
Good question. First lets clear up the IRA contribution deduction. Because of your income level, you are not eligible to deduct your IRA contributions from your tax return, even if you maxed your 401k contribution for that year.
Your income and what you are taxed on is important. If you earn $100k for the year and don't contribute a cent to your 401k, pre-tax, you are taxed on all $100,000.
If you earn $100,000 but contribute $1,000 per month, you will be taxed on $88,000 on your taxes. Contributing to a retirement account pre-tax lowers your AGI.
In regards to adjusting your contributions for 2015, you've passed the window to go back and change it. There's a 3 year period from when you filed the taxes, that gives you the ability to go back and amend.
Answering your actual question - Yes, you will be taxed twice on any money you contribute to your IRA. Once when you actually earn it, and again on the earnings the account has made in that time.
A licensed accountant will be able to give a specific breakdown about what's taxable and what isn't, given your personal situation. Absolutely talk to them before making any adjustments.
I hope this helps!
If you make IRA contributions and then it turns out that you are not permitted to deduct them, you have “non-deductible IRA contributions” (seems natural, right?). In that case, the amount of those non-deductible contributions are tracked on an IRS form 8606. You’ll file that form with your taxes. It becomes your responsibility to maintain that form and tracking. The term for the sum of those non-deductible contributions in your IRA is “basis”. And if you’ve tracked it properly on that 8606, when you eventually take IRA distributions, you’ll potentially owe income taxes on *part* of the distribution. The proportion of the distribution which represents basis is not taxed. You are *not* double-taxed on the money, but you do need to track your basis correctly. In fact, we just published a blog post about this very issue here - I hope you find it helpful: <https://meyersmoney.wordpress.com/2016/02/19/ira-number-soup/>