In the midst of tax season, you may ask, “Do you have to report your Roth IRA on taxes?” In this blog post, La Ferla Group answers that question and provides some key tips for managing your Roth IRA throughout the remainder of 2018.
Do You Have to Report your Roth IRA on Taxes?
For most people, the answer to the question “do you have to report your Roth IRA on taxes?” is no.
The reason for this is because your Roth IRA is funded by your post-tax income, which is the money you take home after taxes have been deducted from your paycheck. The money you contribute to your Roth IRA has already been taxed.
As long as you don’t withdraw funds from your account, reporting Roth IRA contributions on your taxes is not necessary.
Tax Implications of Withdrawing from a Roth IRA
Withdrawals from your Roth IRA may be taxed (which would then require you to report them on your taxes) based on the following conditions:
| When don't you have to report your Roth IRA on taxes? | When do you have to report your Roth IRA on taxes? |
| 1. You withdraw the amount of your contributions or less, which excludes any money your Roth IRA has accumulated in the form of dividends, capital gains, interest, etc. | 1. You are under the age of 59 ½ and withdraw more than the amount of your contributions, including money your Roth IRA has accumulated from dividends, capital gains, interest, etc. |
| 2. You’re age 59 ½ or older and have had your Roth IRA for at least five years | 2. You’re age 59 ½ but have not had your Roth IRA for at least five years |
| 3. You’re under the age of 59 ½ and have had your Roth IRA for at least five years BUT you’re making a withdrawal because you’re disabled, are inheriting the IRA or are using the withdrawal to buy or rebuild a first home | 3. You’re under the age of 59 ½ and have not had your Roth IRA for at least five years |
Additional Roth IRA Tips
Who Would Benefit from a Roth IRA?
Roth IRAs are best-suited for:
- Young, lower-income workers. Since Roth IRAs are not subject to income tax, it’s wise to contribute while you’re in a relatively low income tax bracket.
- Older, wealthy taxpayers. Your Roth IRA can be passed down to your heirs tax-free, as long as you’ve owned it for more than five years.
- People who want to minimize their tax hit in retirement. After you’ve retired, you can make tax-free withdrawals from your Roth IRA, whereas with a traditional IRA, each withdrawal is taxed.
When should you Switch to a Traditional IRA?
Although Roth IRAs have numerous benefits for some, others should consider a traditional IRA instead:
- You’re tight on cash. Traditional IRAs are often tax-deductible, and, therefore, tend to provide more money in your pocket come tax season.
- You make too much money. Single tax filers who make $135,000 or more per year or over, and joint filers that make a combined $199,000 or over, in 2018, are ineligible for Roth IRAs.
- You’re going to make less money in the future. If you’re going to be in a significantly lower tax bracket in the future, whether due to semi-retirement or a career change, a traditional IRA will benefit you more in the long-run.
2018 Roth IRA Income and Contribution Limits
As mentioned previously, there are some limitations to Roth IRAs.
|
Tax Filing Status |
Modified Adjusted Gross Income |
Contribution limit |
|
Married filing jointly
|
Less than $189,000 |
Up to $5,500 ($6,500 if you’re over age 50) |
|
Between $189,000 and $199,000 |
A reduced amount |
|
|
$199,000 or more |
Zero |
|
|
Married filing separately AND you lived with your spouse any time during the year |
Less than $10,000 |
A reduced amount |
|
$10,000 or more |
Zero |
|
|
Single, head of household or married filing separately and you did not live with your spouse during the year
|
Less than $120,000 |
Up to $5,500 ($6,500 if you’re over age 50) |
|
Between $120,000 and $135,000 |
A reduced amount |
|
|
$135,000 or more |
Zero |
To find the amount of your reduced Roth IRA contribution, check this page of the IRS website.
Closing Remarks
Clearly, the question “do you have to report your Roth IRA on taxes?” is a complex one that doesn’t have a clear-cut answer. We recommend reviewing your financial history with a certified financial planner to be completely accurate.
La Ferla Group does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
