Tax reporting for IRAs | Vanguard (2024)

FAQs

Do I need to report anything in my IRA for taxes? ›

IRA contributions will be reported on Form 5498: IRA contribution information is reported for each person for whom any IRA was maintained, including SEP or SIMPLE IRAs. An IRA includes all investments under one IRA plan.

If you didn't take any distributions last year or the amount of your distribution was less than $10, Ascensus will not send you a 1099-R.

If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $153,000 for tax year 2023 and $161,000 for tax year 2024 to contribute to a Roth IRA, and if you're married and filing jointly, your MAGI must be under $228,000 for tax year 2023 and $240,000 for tax year 2024.

No. You aren't required to do anything with Form 5498 because it's for informational purposes only. Please be sure to keep this form for your records as you'll need this information to calculate your taxable income when you decide to take distributions from your IRA.

You can file an amended return to claim a tax deduction for your IRA contributions on a return you previously filed as long as the timeframe hasn't passed. The IRS will treat your contributions as though they were deductible if you do nothing. It will tax them when you make withdrawals at retirement.

IRS Form 1099-R

Form 1099-R is used to report distribution (withdrawal) amounts from a 401(k) plan or IRA. Note you will only receive this if you took a distribution or completed a direct rollover.

If you receive a Form 1099-R and do not report the distribution on your tax return, the IRS will likely send you a CP2000, Underreported Income notice. This IRS notice will propose additional tax, penalties and interest on your distributions and any other unreported income.

If you don't include this and any other taxable income on your tax return, you may be subject to a penalty. Failing to report income may cause your return to understate your tax liability. If this happens, the IRS may impose an accuracy-related penalty that's equal to 20% of your underpayment.

The IRS employs various methods to detect discrepancies in tax reporting, including the absence of 1099 forms. While the IRS does not catch every missing 1099 immediately, their sophisticated systems and data-matching capabilities make it likely that discrepancies will be identified over time.

For tax year 2024, single and head-of-household filers with MAGIs of $146,000 to $161,000 can contribute only limited amounts. The income phaseout range for married couples filing jointly is $230,000 to $240,000. Taxpayers with incomes above those top numbers cannot contribute anything to a Roth IRA.

What counts as income for IRAs? ›

To contribute to an IRA, you must have an earned income. Earned income is simply any type of taxable income, such as wages, salaries, and tips. Roth IRAs have specific income limits (listed below), which limit the amount of money certain individuals can contribute to their IRA.

The money deposited into a traditional IRA reduces your adjusted gross income (AGI) for that tax year on a dollar-for-dollar basis, assuming it is within the annual contribution limits (see below). So a qualifying contribution of, say, $2,000 could reduce your AGI by $2,000, giving you a tax break for that year.

Form 1099-R is issued when a taxpayer doesn't make the required loan payments on time. When this occurs, the amount not repaid is considered a distribution and is usually reported on Form 1099-R with the distribution code L.

Contributions for all types of IRAs—Roth, traditional, SEP, and SIMPLE—are reported on Form 5498.

If none of the gross distribution in block 1 Gross Distribution on a 1099-R is taxable, you must enter 0 in block 2a Taxable amount. If block 2a is left blank, the entire amount of the distribution entered in block 1 Gross Distribution is treated as taxable.

Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return), but qualified distributions or distributions that are a return of contributions aren't subject to tax.

The short story: A traditional IRA gets you a tax break today, but you pay taxes when you withdraw any money. Meanwhile, a Roth IRA allows you to take tax-free distributions in the future in exchange for contributing after-tax money today.

When you withdraw the money, both the initial investment and the gains it earned are taxed at your income tax rate in the year you withdraw it. However, if you withdraw money before you reach age 59½, you will be assessed a 10% penalty in addition to the regular income tax based on your tax bracket.

If you have moved assets directly from one of your IRAs to another IRA, this is considered a direct transfer. Direct transfers are not reported—either to you or to the IRS—and you do not have to account for them on your annual tax return.