There are many different types of retirement plans and accounts. Popular types of workplace plans include the 401k, 403b, and SIMPLE IRA. There are also individual accounts not associated with an employer, the traditional IRA and Roth IRA.
If a taxpayer makes contributions to these types of plans or accounts, do they need to report them on their tax return?
Workplace plan contributions are typically reported on your W2
As described in our post from a couple of weeks ago explaining W2s, retirement plan contributions made by the employee are typically included in box 12 of their W2. Here are some of the codes for employer retirement plan contributions:
D = Traditional 401k deferrals
E = Traditional 403(b) deferrals
AA = Roth contributions to 401k
BB = Roth contributions to 403b
S = SIMPLE IRA contributions
The tax treatment of the contribution will already be reflected on the W2. For example, if the contribution is a traditional (non-Roth) contribution that reduces income, the amount will not be included in Box 1. Other than correctly entering in your W2, your contributions do not need to be reported elsewhere on your return. One exception to this is if you qualify for the Saver’s Credit, described below.
Traditional IRA contributions need to be reported on your tax return
Traditional IRA contributions need to be reported on your tax return. If you made a deductible contribution, the contribution will need to be included as an adjustment, reducing taxable income. You need to make sure your modified adjusted gross income (MAGI) qualifies you to make a deductible contribution as well.
If non-deductible contributions were made to a traditional IRA, they will need to be reported on form 8606. Roth conversions also need to be reported. Traditional contributions will also apply toward the Saver’s Credit, described below.
Roth IRA contributions do not need to be reported on your tax return, but they will need to be reported for the Saver’s Credit
Because Roth IRA contributions are post-tax, they do not need to be reported on your tax return. You still need to be aware of the modified adjusted gross income (MAGI) limits for making Roth IRA contributions.
Also, contributions need to be considered for the purposes of the Saver’s Credit, described below. However, because of the adjusted gross income (AGI) limits for the Saver's Credit, many taxpayers do not qualify.
Saver’s Credit provides extra tax benefits for making retirement plan contributions
The Saver’s Credit provides extra tax benefits for making retirement account contributions. As a reminder, a credit is a dollar-for-dollar reduction in tax.
If a taxpayer is not a dependent or student, and makes a contribution to a retirement plan, they may qualify for the tax credit. The maximum contribution that qualifies for a credit is $2,000 per person ($4,000 if married filing jointly). The credit amount is a percentage of this maximum qualifying contribution. The percentage varies depending on the taxpayer’s adjusted gross income (AGI) and filing status (numbers below are for tax-year 2023):
Single filing status
50% = AGI less than or equal to $21,750
20% = AGI between $21,751 and $23,750
10% = AGI between $23,751 and $36,500
0% = AGI greater than $36,500
Married filing jointly
50% = AGI less than or equal to $43,500
20% = AGI between $43,501 and $47,500
10% = AGI between $47,501 and $73,000
0% = AGI greater than $73,000
For example, if a single person with an AGI of $18,000 makes a Roth IRA contribution of $3,000. They will receive a Saver’s Credit of $1,000 ($2,000 maximum qualifying contribution * 50%).
A couple with married filing jointly status has an AGI of $50,000 and the husband makes a $700 Roth IRA contribution. They will receive a Saver’s Credit of $70 ($700 contribution * 10%).
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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