Legal Blog

The Weekly Scenario: Tracking Contributions to Roth IRA

Question: How does IRS know/track whether a person contributed more than the allowable contributions limits to his Roth IRA?

Answer: Beginning with a little context, individuals who wish to make a contribution to a Roth IRA may do so provided that such individual’s modified adjusted gross income (or “MAGI”) is below certain income limitations. For 2015, the phase-out range to make Roth IRA contributions for married couples filing jointly is $183,000 – $193,000, or $116,000 – $131,000 for single individuals. Individual taxpayers are required to report ‘traditional’ IRA contributions on their tax returns by either taking a tax deduction for it or by filing Form 8606 to report it as nondeductible. So if an individual makes an ‘excess contribution’ to a Roth IRA (a contribution in excess of the limit), the IRS will purportedly know about it. However, Roth IRA contributions are not reported anywhere on the tax return and thus can only be checked by analyzing other documentation (but not that of the taxpayer’s own tax return filing). Comment: This lack of disclosure is interesting because Roth IRAs grow tax free and are not subject to income taxes when distributed. If people are, in general, making excess Roth contributions, this could result in a whole lot of lost revenue to the IRS since that money grows tax free and overtime could accumulate to be large sums. If you have any questions or would like more information please contact Steve Shane at:sshane@offitkurman.com | 301.575.0313.

ABOUT STEVE SHANE

Steve Shane Head Shot for webSteve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

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