Do I have to contribute as much to my Roth as stated on my taxes?
April 12, 2010 1:34 PM Subscribe
My tax preparer reported I contributed more to my Roth IRA than I actually did. Does this matter?
I was planning on contributing 3k, it was miscommunicated somehow and ended up as 5k on my tax form. Since I only pay taxes on the Roth when I withdraw, does it really matter how much I contribute? My taxes have been submitted and I'm having trouble getting in touch with him so I though I'd pick your minds before panicking.
I was planning on contributing 3k, it was miscommunicated somehow and ended up as 5k on my tax form. Since I only pay taxes on the Roth when I withdraw, does it really matter how much I contribute? My taxes have been submitted and I'm having trouble getting in touch with him so I though I'd pick your minds before panicking.
I think you are confusing Roth and Traditional IRAs. With a Roth, you pay taxes on the money now, and withdrawals are tax free in the future.
posted by dcjd at 1:49 PM on April 12, 2010
posted by dcjd at 1:49 PM on April 12, 2010
I'm not a lawyer or tax expert; weigh my response accordingly. Technically, what you're doing is hiding taxable income. The IRS is getting nastier about such things, and you can be liable for penaly and interest if the IRS believes it was a mistake in reporting, or they can be really irksome if they think this was deliberate. My advice is to file an amended return and correct this item. Here is a recent article about the IRS's aggressive approach.
posted by Hilbert at 1:51 PM on April 12, 2010
posted by Hilbert at 1:51 PM on April 12, 2010
For some reason the link wasn't posted. Here it is as tesxt:
http://finance.yahoo.com/taxes/article/109287/how-to-not-get-audited-by-the-irs
posted by Hilbert at 1:52 PM on April 12, 2010
http://finance.yahoo.com/taxes/article/109287/how-to-not-get-audited-by-the-irs
posted by Hilbert at 1:52 PM on April 12, 2010
Best answer: First, don't panic.
Second, I am not an accountant, I am not your accountant, and this is not tax advice.
It is important that the IRS know how much you have contributed to your Roth so they know when to start penalizing you if you make early withdrawals. However, the financial institution where your IRA is held would have reported the correct amount to the IRS, and the IRS is probably going to take their word anyway in the event of a dispute. And it would only be a factor when your withdrawals exceed your contributions, and then only if you tried to use the $5,000 figure instead of the true $3,000, and even then only if you were going to have to pay a penalty on your withdrawal to begin with (which you wouldn't if you were of retirement age). And even if you did somehow get caught in this trap, the worst that probably would happen is that the IRS would come back and said "no, you owe a 10% penalty on an extra two grand."
You should probably have your tax preparer file an amended return anyway, as it's good to keep these things straight with the IRS. You can do this at any time; there is no reason to try to cram it in before April 15. If you wait until after the busy season, you might get it done for free (it will take your tax preparer literally 5 minutes, I would imagine). But even if you don't file an amended return, I would not lose any sleep over it.
posted by kindall at 1:53 PM on April 12, 2010 [1 favorite]
Second, I am not an accountant, I am not your accountant, and this is not tax advice.
It is important that the IRS know how much you have contributed to your Roth so they know when to start penalizing you if you make early withdrawals. However, the financial institution where your IRA is held would have reported the correct amount to the IRS, and the IRS is probably going to take their word anyway in the event of a dispute. And it would only be a factor when your withdrawals exceed your contributions, and then only if you tried to use the $5,000 figure instead of the true $3,000, and even then only if you were going to have to pay a penalty on your withdrawal to begin with (which you wouldn't if you were of retirement age). And even if you did somehow get caught in this trap, the worst that probably would happen is that the IRS would come back and said "no, you owe a 10% penalty on an extra two grand."
You should probably have your tax preparer file an amended return anyway, as it's good to keep these things straight with the IRS. You can do this at any time; there is no reason to try to cram it in before April 15. If you wait until after the busy season, you might get it done for free (it will take your tax preparer literally 5 minutes, I would imagine). But even if you don't file an amended return, I would not lose any sleep over it.
posted by kindall at 1:53 PM on April 12, 2010 [1 favorite]
Also, it will not affect your tax liability because Roth contributions are after tax.
posted by kindall at 1:55 PM on April 12, 2010
posted by kindall at 1:55 PM on April 12, 2010
What kindall said. The only possible problem would be if your Adjusted Gross Income is in the phase out range for Roth contributions and you are only allowed to contribute less than 5k. You might want to call your tax guy and make sure you are safe.
posted by mrhappy at 2:03 PM on April 12, 2010 [1 favorite]
posted by mrhappy at 2:03 PM on April 12, 2010 [1 favorite]
Good point on the phase-out. The phase-out begins when your modified adjusted gross income reaches $105,000 (for a single or HOH filer) or $166,000 (for married joint filers). The phase-out begins at $0 for married separate filers, so hope you didn't file that way.
posted by kindall at 2:34 PM on April 12, 2010
posted by kindall at 2:34 PM on April 12, 2010
It could also matter even if you are beneath the phase out for Roth IRA contributions, if your income is low enough.
There is a special tax credit called the Retirement Savings Contribution Credit that is available to individuals making below certain income threshholds (c.$2bk AGI for single, c. $56k for married filing jointly). I think it only gives credit for the first $2k put away (even if put away in a Roth), so only putting in $3k instead of $5k wouldn't make you un-eligible (if you were even eligible in the first place), but the total of your retirement contributions does need to be reported, so an amended return would likely be needed.
I am not an accountant, I just unexpectedly found out last year I was eligible for this credit (only worked 5 months out of 12, so low income year) and had to file an amended return to claim it.
posted by CharlieSue at 3:25 PM on April 12, 2010
There is a special tax credit called the Retirement Savings Contribution Credit that is available to individuals making below certain income threshholds (c.$2bk AGI for single, c. $56k for married filing jointly). I think it only gives credit for the first $2k put away (even if put away in a Roth), so only putting in $3k instead of $5k wouldn't make you un-eligible (if you were even eligible in the first place), but the total of your retirement contributions does need to be reported, so an amended return would likely be needed.
I am not an accountant, I just unexpectedly found out last year I was eligible for this credit (only worked 5 months out of 12, so low income year) and had to file an amended return to claim it.
posted by CharlieSue at 3:25 PM on April 12, 2010
It may not "matter" in the sense of what your tax paid/refunded was for 2009, but it does "matter" in that your accountant submitted an erroneous return. As such, and assuming this was not an error in what you gave him, your preparer is responsible for fixing this error by filing an amended return, for no additional fee, and if he's at all ethical he will do so without blinking an eye.
There isn't a lot of time sensitivity on that, so take a deep breath and wait until after April 15 and his crunch time to pester him again. It can even wait until after his post-tax-day vacation.
It's not that big a deal to amend a return. A professional preparer shouldn't have made an error like this, but typos and other mix-ups do happen. That's why the amended return forms exist, after all.
posted by dhartung at 11:55 PM on April 12, 2010
There isn't a lot of time sensitivity on that, so take a deep breath and wait until after April 15 and his crunch time to pester him again. It can even wait until after his post-tax-day vacation.
It's not that big a deal to amend a return. A professional preparer shouldn't have made an error like this, but typos and other mix-ups do happen. That's why the amended return forms exist, after all.
posted by dhartung at 11:55 PM on April 12, 2010
This thread is closed to new comments.
posted by phoenixy at 1:42 PM on April 12, 2010 [2 favorites]