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So with a traditional IRA, its obviously critical and imperative to your tax return to know the how much and when you are opening/contributing to one.

But with a ROTH IRA, does it matter? Say you already filed your taxes for the year and then realized you have some extra money in your savings account you would like to put away in a tax free vehicle, like the ROTH. As long as your MAGI is under the limit, can you just go to any online broker and open up a ROTH and not have to fill out some tax return related form?

I noticed one of the popular tax software programs asks that question during the return interview process. Is it too late after the fact?

Thanks
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Roth IRA contributions are normally not taxable events; however, from page 29 of the 1040 instructions:

You cannot deduct contributions to a
Roth IRA. But you may be able to take the
retirement savings contributions credit
(saver's credit). See instructions for
line 50.


This is probably why the tax software is asking (as well as checking MAGI limits).

Quick & easy way to check if it matters for you is to re-run the software, this time including the Roth IRA amount, and see if it makes a difference. If it makes a difference, then you can:
- Make a 2011 Roth IRA contribution, and file an amended 2011 tax return, or
- Make the Roth IRA contribution for 2012.

If it makes no difference, then OK to open a Roth and make a 2011 contribution without any further interaction with the IRS.
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Say you already filed your taxes for the year and then realized you have some extra money in your savings account you would like to put away in a tax free vehicle, like the ROTH. As long as your MAGI is under the limit, can you just go to any online broker and open up a ROTH and not have to fill out some tax return related form?

Yes. I contribute to my Roth IRA every year, and nothing related to the Roth shows up on my tax return. I don't have to fill out any tax return related forms as long as I'm not taking any money out of the Roth.

However, I do need to keep records. If I end up taking a non-qualified distribution (essentially a withdrawal from the Roth before it has been in place 5 years or before I reach age 59 1/2, with various exceptions listed in Pub 590) I will need to know in detail how much I contributed in which tax years and how much I converted from traditional IRAs in which tax years.

I noticed one of the popular tax software programs asks that question during the return interview process. Is it too late after the fact?

The program is probably trying to find out if you qualify for the Retirement Savings Credit. If your AGI is greater than the limit for filing status (TY 2011: 56,500 MFJ; 42,375 HoH; 28,250 Single), you can't claim the Retirement Savings Credit anyway.

Patzer
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If it makes no difference, then OK to open a Roth and make a 2011 contribution without any further interaction with the IRS.

You are not required to claim the retirement savings credit, even if you qualify for it. So if it makes a difference, but the difference is so small that it's not worth the bother of amending, you're fine to leave it alone.

Patzer
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YewGuise & Patzer.

Major thanks! I appreciate your time and the info.
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You can have your ROTH and eat it too - even if your MAGI isn't under the limit.

You put your money into a standard IRA. You immediately transfer it to a ROTH IRA. You're good.

You're welcome... 8)
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You can have your ROTH and eat it too - even if your MAGI isn't under the limit.

You put your money into a standard IRA. You immediately transfer it to a ROTH IRA. You're good.


For lurkers, this advice doesn't work for everyone. It works only if you have no traditional IRA account, including rollovers from prior employers, SEPs and SIMPLEs with pre-tax money in them. In that scenario you'll have taxable income from the conversion to Roth. See Part I of Form 8606.

Phil
Rule Your Retirement Home Fool
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