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Old 12-20-2013, 03:17 PM
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Question IRA Contribution / Withdrawal in the same year

I contributed $4,000 towards my traditional IRA early in 2013, but later on I took out a distribution of $8,000 from this account. I know I need to pay tax on the $8,000 distribution. I also opened a ROTH IRA account last week which is not funded yet. My question is two-fold:

1. Do I show both the $4,000 contribution as a deduction from my 2013 AGI, and $8,000 taxable withdrawal, or just a net $4,000 withdrawal.

2. Since I have already taken out more that I contributed to my regular IRA this year, can I contribute the fully allowed $6,500 contribution to my Roth IRA account in 2013, while paying tax on the net withdrawal of $4,000 from my regular IRA.

Thank you.



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Old 12-21-2013, 01:15 AM
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Quote:
Originally Posted by chandra0102 View Post

#1. Do I show both the $4,000 contribution as a deduction from my 2013 AGI, and $8,000 taxable withdrawal, or just a net $4,000 withdrawal.



#2. Since I have already taken out more that I contributed to my regular IRA this year, can I contribute the fully allowed $6,500 contribution to my Roth IRA account in 2013, while paying tax on the net withdrawal of $4,000 from my regular IRA.

Thank you.
#1; As you received a distribution in 2013 from a traditional IRA and you also made contributions to a traditional IRA for 2013 that may not be fully deductible because of the income. limits. Then you can figure the amount of nondeductible contributions to report on Form 8606. Follow the instruc-tions under Reporting your nontaxable distribution on Form 8606, next, to figure your remaining basis after the distribution.you need to report your nontaxable distribution on Form 8606. To report your nontaxable distribution and to figure the remaining basis in your traditional IRA after distributions, you must complete Worksheet 1-5 before completing Form 8606.



#2;as said above, I t depends on the amount of non-taxable contribution; you contribute to an IRA or ROTH IRA $5,500 for those age 49 and under $6,500 for those age 50 and older for the 2013 calendar year.



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Old 12-22-2013, 05:34 PM
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Question

Thanks for your reply, but I am a bit confused by what you said. Since I took out $8,000 recently from my regular IRA, while having contributed $4,000 into it earlier in the year, I am willing to pay tax on the net $4,000 (net of $8,000 distribution and $4,000 contribution) that I took out. So, there is no question of "excess contribution". There was in fact a net withdrawal that is taxable. Which is fine.

Now, my thinking is that this leaves me with my full allotment of $6,500 contribution allowed for 2013 that I want to put into my new Roth IRA. I just want to confirm that I am correct on this point.

I would appreciate any help from anyone to clarify this. Thanks.



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Old 12-22-2013, 06:48 PM
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Originally Posted by chandra0102 View Post

Now, my thinking is that this leaves me with my full allotment of $6,500 contribution allowed for 2013 that I want to put into my new Roth IRA. I just want to confirm that I am correct on this point.
I guess so; even if you made a contribution to your IRA, you can withdraw that contribution of $4K tax-free and penalty-free if you do so by the due date of your return, which will generally be April 15 of 2014 following the taxable year. If you obtain an extension(Oct 15 of 2014) for your taxes, then you have until your extended due date to withdraw those contributions tax- and penalty-free. In order to withdraw all of your contributions of $4K for the tax year of 2013, you cannot have already taken a deduction on the contribution and you must withdraw any interest or other income earned on that contribution, too. If your contribution experienced a loss, you may adjust your contribution, based on the amount of the loss. So, contributions can be withdrawn tax and penalty free at any time. For example, say you contributed $4K and it earned $80 and you withdrew $4080, you'd be taxed on the $80, the earnings. The money in your IRA is designed to help you save for a comfortable retirement. In order to discourage people from raiding their retirement funds, the IRS imposes penalties on those who take early withdrawals from their IRA accounts. If you have not yet reached retirement age, any withdrawals you make from your IRA are subject to a tax penalty. In addition to those tax penalties, you will also be required to report, and pay taxes on, the amount you withdraw from your plan. After you pay taxes on the interest income/withdrawal, then, you need to calculate your MAGI. Though there are a number of benefits to having a Roth IRA, including being able to withdraw the money before retirement for educational expenses or buying a home, there are income limits governing who can contribute to a Roth IRA. If your income rises above a certain level, there is a phase-out of contributions. The allowable MAGI guidelines also vary depending on your taxable status. Al;so as you cansee, Unlike with a traditional IRA, contributions to your Roth IRA are not tax-deductible. However, you may also withdraw your contributions at any time with no penalty attached. You can also take advantage of spousal contribution rules when applicable. Each spouse can own a Roth IRA, and a married couple may each contribute the maximum limit to both accounts. That means you can contribute twice as much to each account each year.I guess you need to contact a plan administrator for more accurate info in detail.



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Old 12-23-2013, 12:15 PM
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One last question, if you don't mind. Can I take a $4,000 deduction (for my contribution), and pay tax on the full $8,000 withdrawal at the same time, all in my 2013 tax return.
Thank you very much.



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Old 12-23-2013, 01:35 PM
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Quote:
Originally Posted by chandra0102 View Post
Can I take a $4,000 deduction (for my contribution), and pay tax on the full $8,000 withdrawal at the same time, all in my 2013 tax return.
As long as you w/d your contribution of $4K by the due date of your return which will generally be April 15 of 2014 following the taxable year,you can't take a $4K deducion but yu still need to pay tax on the full $8K withdrwal in your 2013 return. As said assume that you contributed $4K and it earned $80 and you withdrew $4080, you'd be taxed on the $80, the earnings.



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Old 12-23-2013, 02:22 PM
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I think I may have miss-stated my last question.

I DO NOT want to withdraw my $4,000 contribution to my regular IRA acct, but rather treat this as my regular tax-deferred contribution to this acct.

Doesn't that leave me to contribute $2,500 to my new Roth IRA acct (Fully allowed $6500 (I am 65 yrs old), less the $4,000 contribution (above) to my regular IRA.

I will also pay tax on the $8,000 withdrawal from the regular IRA acct.

Does that sound correct.



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Old 12-23-2013, 02:56 PM
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As mentioned previously, you received a distribution of $8K in 2013 from a traditional IRA and you also made contributions of $4K to a traditional IRA for 2013 that may not be fully deductible because of the income.So it depends on your MAGI.To get the tax deduction, you must specify that you're contributing to a traditional IRA when you make your annual contribution. When you fill out the deposit slip and submit your IRA money to the broker, mutual fund company or bank holding your account, there is a box you can check to indicate which type of IRA you're contributing to. If you choose a traditional IRA, you can get a tax break when you complete your Form 1040, but you pay taxes on the money when you withdraw .As said you need to contact plan administrator for more info in detail.



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