| “In 2011, I accepted and worked at a job in December. Although I worked in Dec 2011, and have a paystub for the period I worked in 2011, I was not paid until January 2012. “========>UNLESS there was "substantial restrictions and limitations” for you to be paid by your ER in 2011, you need not have physical possession for an amount to be included in gross income. Income that is set aside for you, credited to an account, or otherwise made available is constructively received by you.
“1. Elsewhere on this board, I read about "constructive receipt". I assumed (wrongly?) that since I had worked and earned income in 2011, I would be eligible to make an IRA contribution - even if my employer didnt pay me until after year-end. I am concerned that the contribution I made to a 2011 Roth IRA is ineligible due to the constructive receipt doctrine and the absence of a 2011 W-2 for the period worked. Can income earned in 2011 but not received until 2012 be used to fund a 2011 IRA? I could submit the paystub which shows the pay period in lieu of a W-2. When I entered my info into TTax, it suggested I could not (imposed a penalty for excess contributions).”===============>Basically, you constructively receive the wage income when you have the power to receive income but choose not to;in other words, when you have what the Tax Court describes as "unfettered control by the recipient over the date of actual receipt." Usually constructive receipt comes into question the end of an accounting period.So, you have constructive receipt on the first date you have a right to claim income. You don't have to possess it; it's considered received if it's credited to your account or made available to you. There's no constructive receipt if there are substantial limitations or restrictions on your control of its receipt.For example, if you received a paycheck on December 31, 2011 but didn't cash the check until sometime in Jan 2012, you have to include the paycheck as income on your 2011 tax return. The money was available to you in 2011. Therefore if you controlled whether or not you received income, you constructively received it. But if your control over yoiur receipt of the income was subject to "substantial restrictions and limitations( i.e., due to lack of funds to be paid to you as yur wage income) then the doctrine of constructive receipt does not apply. So in this case, I guess you can’t contribute your wage to R-IRA.
“2. If I can deem the income as 2011 income, how do I do it? “=============>As said, income is constructively received when an amount is credited to your account or made available to you without restriction, even if you don't have possession of it. For example, if an agent is holding the money for you, it has been considered to be received by you, even if the money is not in your bank account. The IRS goes on to note that, "Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations." If your control is subject to "substantial limitations or restrictions," however, the income isn't considered to be received in 2011. The difficulty is that neither the IRC nor the Regulations precisely define "substantial limitations or restrictions," so understanding of this phrase and its operation comes from reviewing judicial interpretations and their application; constructive receipt requires an unqualified vested right to receive income;there can be no condition, limitation, or restriction that prevents you from having unrestricted access to your money ………. I guess you need to accurately check this out for 2011 situation.
NOTE; as you can deduct traditional IRA contributions from your taxable income, they impact your taxes due. Therefore, the IRS requires you to report how much money you put into traditional IRAs each year. Since the IRS does not attach the same benefit to R-IRAs, you do not have to report contributions on your tax return. Your IRA's custodian whether a bank, brokerage, or other firm sends a Form 5498 noting your IRA contributions and market value to the IRS. This allows the IRS to keep track of how much money you contributed to your IRAs in a given year. Box 10 on the 2011 form shows R-IRA contributions.
“Let's say the gross paystub was $5000, and the 2011 Roth IRA contribution was $4000. Can/do I put the $4000 or $5000 on the 2011 1040 wages line?”=========>You need to report the gross wage of $5K on 1040 line 7.
“ If so, do I reduce the following year W-2 by the same amount, and submit an explanation that the reduced amount was previously reported on my 2011 return? If I dont do that, wouldnt the same income be taxed twice?”======== R-IRA contributions are made with after-tax dollars so there are no reporting forms needed. The R-ira trustee will send both you and the IRS notification of how much you contributed to your R-IRA.
“3. If the IRA contribution was indeed ineligible, what's the best way to unwind it? The 2011 return was filed with an extension to 10/17/12. Unfortuantely, before realizing the 2011 might have been ineligible, I just funded my 2012 and 2013 IRA contributions ($6000 each, >50 yrs old) at another firm about 3 weeks ago. Since I filed for a 2012 extension, could I reverse/withdraw the 2012 contribution and redesignate the 2011 to 2012 (I would not be eligible for a Roth for tax year 2012). “===========>As you made a contribution that's not permitted, you've made an excess contribution; withdrawing excess by due date of return. If you find that your contribution to a R-IRA was improper, you can avoid the 6% penalty tax by taking the money out. Relief from the penalty is available only if you receive a distribution from the IRA on or before the due date including extensions for filing your return for the year of the contribution.The distribution should include the amount of the excess contribution and the amount of net income attributable to the excess.When you choose this method of correction, you're required to report and pay tax on the net income attributable to the excess in the year of the contribution, even if you take it out during the following year, before the return due date. The earnings will be taxed like any other taxable distribution of earnings from a R-IRA, and will be subject to the early distribution penalty if you're under 59½ unless an exception applies. Another way to correct an excess contribution is to have the trustee of your R- IRA make a direct transfer from the R-IRA to a traditional IRA. To avoid penalties, you must meet requirements similar to those described in the previous section.The transfer must occur on or before the due date including extensions for filing your return for the year of the contribution ,2011.The transfer must include the amount of the excess contribution and the amount of net income attributable to the contribution.If you meet these requirements, you'll be treated as if the contribution went to the traditional IRA in the first place. And you don't have to pay tax on the earnings that are transferred from one IRA to another.
Example: Suppose you contribute $5,000 to a Roth IRA early in 2011, expecting your modified AGI to be below the income limitation for Roth IRA contributions. At the end of the year you find that your modified AGI is higher than expected and your Roth IRA contribution limit is $3,000. Before October 15, 2012 you have the trustee of your Roth IRA transfer $2,000 plus the earnings attributable to that $2,000 directly to a traditional IRA. You're treated as if you originally contributed $3,000 to the Roth IRA and $2,000 to the traditional IRA.
Note: Some people mistakenly believe a recharacterization can be used only as a way to undo a Roth conversion, but it can also be used to change the type of IRA to which a contribution was made.A recharacterization transfer provides a bonus. Besides eliminating the 6% penalty tax, it allows you to keep the earnings you may have built up during the year in an IRA, instead of taking the earnings out and paying tax on them. But you'll benefit from a recharacterization only if you're permitted to contribute to a regular IRA. If your excess contribution to the R-IRA would also be an excess contribution in a regular IRA you can't use this method to avoid a penalty. For example, if you waited more than 60 days to complete a rollover, you won't be able to fix the problem by making a recharacterization.
“Would the fact the 2012 IRA contribution was larger than 2011, and at a different firm, affect my ability to do this?”============>I guess as mentioned above, It depends.
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