Advanced Underwriting Consultants

Question of the Day – August 31

Ask the Experts!

Here’s the question of the day.

 

Question: My client intends to make a contribution to a Roth IRA for 2011 in April of 2012.  If it turns out the client earned too much in 2011, can the contribution be applied to calendar year 2012?

Answer: Yes, assuming the client qualifies to make a Roth IRA contribution for 2012.

 

In the case of a traditional IRA, contributions made between April 16 and December 31 of a calendar year are assumed to be contributions made for that calendar year. On the other hand, traditional IRA contributions made between January 1 and April 15 may be a contribution for either that calendar year or the prior calendar year. The taxpayer must indicate on the form submitted to the IRA custodian to which year the contribution applies.

 

Here’s an example. On December 1, 2010, Sally made a traditional IRA contribution of $3,000. On January 5, 2011, Sally made an additional contribution of $3,000 and reported to the IRA custodian that this was a 2010 contribution.

On April 15, 2011, Sally filed her 2010 Federal Income Tax Return and took a deduction of $6,000 for an IRA contribution.  Some time later (but in no case later than May 31) the IRA custodian issued a Form 5498 with copies to both the taxpayer and the IRS indicating Sally made $6,000 in 2010 traditional IRA contributions.

 

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