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Author: ptchemist Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25234  
Subject: Easy 401k & IRA Tax Question Date: 6/23/2004 3:36 PM
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I am a recent ChE graduate who got his first job. I promptly contributed to the company's 401k (up to their 4% match) and have maxed out a Roth IRA. I realize my question could easily be asked the taxation board, but it is such an easy question most people on this board should know. When it comes to be April 15th, how do I account for the 401k contribution and the Roth IRA contribution?
As I presently understand it the 401k contribution will show up on the 1040 form under a section specifically asking about 401k contributions. The Roth, however, I am a bit more unsure. It would appear as though I don't need to do any accounting for this until I withdraw. Am I correct? Thanks for your advice.
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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17588 of 25234
Subject: Re: Easy 401k & IRA Tax Question Date: 6/23/2004 3:43 PM
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As I presently understand it the 401k contribution will show up on the 1040 form under a section specifically asking about 401k contributions. The Roth, however, I am a bit more unsure. It would appear as though I don't need to do any accounting for this until I withdraw. Am I correct?
Yes, you are correct. Because Roth contributions are post-tax, they do not affect your tax liability in the year you make them. Since the earnings can be distributed tax free upon retirement (when you become of age), there is no tax liability then either. Still, your RIRA broker will send you and the government a statement each year detailing the contributions made just so everyone can keep track.

Fuskie
Who guesses there may be other reasons for this statement, but can not think of them at the moment...

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17589 of 25234
Subject: Re: Easy 401k & IRA Tax Question Date: 6/23/2004 3:49 PM
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Actually your pretax 401K contributions do not appear on your 1040 either. They are deducted from your gross pay when reported on your W-2 form. Hence you reduce your reportable taxable gross income for tax purposes. However, your total income including the contributions gets reported in another box so your true gross pay continues to be used in various benefits and Social Security calculations.

Isn't all the paperwork wonderful. Fortunately, it all comes out in the wash--most of the time.

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Author: harveyivory Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17592 of 25234
Subject: Re: Easy 401k & IRA Tax Question Date: 6/24/2004 2:30 PM
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Fuskie
Who guesses there may be other reasons for this statement, but can not think of them at the moment...


I have one reason for these statements, to make sure your deposits get credited for the correct year. I thought I had been making my contributions in March/April for the previous tax year, but the nice people at the brokerage house figured if it was 1999, then the deposit must be for 1999 tax year. It was not until I caught up on my IRA deposits a few years later that they told me I had already made my deposit for this tax year. It was a lot of paperwork restating the last three years of deposits into the correct tax years.



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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17593 of 25234
Subject: Re: Easy 401k & IRA Tax Question Date: 6/24/2004 2:54 PM
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"It was a lot of paperwork restating the last three years of deposits into the correct tax years."

Been there; done that.

When you make an IRA/Roth IRA contribution in a year other than the current one--

1. write the year of the contribution in the memo box of your check. As "2003 IRA Contribution"

2. Check your statement to make sure it was properly recorded as for the proper year.

3. If not properly recorded, write your custodian a letter calling the error to their attention and keep a copy of the letter for your files.

I don't think this a big deal as long as you clearly establish your intent and make a reasonable effort to promptly correct your custodian's clerical error. Eventually it will come out in the wash and the paperwork catches up with your wishes.

Its merely a paperwork hassle.


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