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Old 02-09-2014, 07:16 PM
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Smile Contribution and Withdrawal from IRA accounts

I asked this question a while back, but there is an additional angle to my dilemma and would appreciate any help on how to handle this.

I deposited $4,000 in my traditional IRA acct. early in 2013. Later in the year I took out an $8,000 distribution from this account. (I am allowed $6,500 contrib. based on my age and earned income in 2013.)

I just got a 1099 showing the $8,000 distribution for 2013.

I have a few specific questions regarding this and would appreciate if some one can help:
1. Should I claim the $4,000 contribution as deduction from my AGI, while paying tax on the $8,000 distrib., or, not take the deduction and pay tax on the net $4,000 distrib.

2. If I do not claim the $4,000 deduction (and pay tax on the full $8,000), can I contribute the fully allowed ($6,500) to a Roth IRA for 2013?

3. If I contribute an additional $2,500 to my traditional IRA can I claim the full $6,500 deduction from my AGI (and pay tax on the $8,000 distrib.)

4. Can I break-up my allowed contrib. into $4,000 to traditional IRA and $2,500 to a ROTH IRA, (while paying tax on the $8,000 distrib).

5. And lastly, Can I contribute to an IRA account (Trad'l or Roth) in the same year in which I am required to take an RMD.

Thanks for any help.



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Old 02-10-2014, 12:40 AM
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Quote:
Originally Posted by chandra0102 View Post
.


#1. Should I claim the $4,000 contribution as deduction from my AGI, while paying tax on the $8,000 distrib., or, not take the deduction and pay tax on the net $4,000 distrib.

#2. If I do not claim the $4,000 deduction (and pay tax on the full $8,000), can I contribute the fully allowed ($6,500) to a Roth IRA for 2013?

#3. If I contribute an additional $2,500 to my traditional IRA can I claim the full $6,500 deduction from my AGI (and pay tax on the $8,000 distrib.)

#4. Can I break-up my allowed contrib. into $4,000 to traditional IRA and $2,500 to a ROTH IRA, (while paying tax on the $8,000 distrib).

#5. And lastly, Can I contribute to an IRA account (Trad'l or Roth) in the same year in which I am required to take an RMD.

Thanks for any help.

#1;
as said previously, you may deduct your contribution of $4k regardless of whether you took a distribution in the same year, even if its from the same acct. because the two transactions are treated separately. When you file your income taxes, you would report the amount of the withdrawal as a taxable distribution and then deduct your contribution as a deductible contribution. However, because of the early withdrawal penalties, even if you contribute the same amount as you took out, the two might not cancel each other out.



#2;you can contribute $2.5k more.



#3;correct as mentioned above.

#4;it is possible to invest in both each year. However,you CAN'T max them both out



#5;with only your rmd income?tax law states,” contribution limits on retirement accounts are based on earned income, As RMDs are considered a return of capital and growth, not earned income, and therefore RMDs cannot be used to contribute to retirement accounts. You can continue contributing to an ira until you turn 70 1/2 as long as contributions do not exceed your earned income. After that, your eligibility to contribute depends on what type of IRA you have. aslongas your spouse has earned income and you file a joint return, you are also entitled to make an ira contribution.
As long as you have earned income, regardless of your age You meet the basic requirement for funding a Roth IRA.



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