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Really Stupid IRA Question
Old 03-05-2007, 04:39 PM   #1
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Really Stupid IRA Question

Sorry for the dense question...

If you're allowed to claim IRA contributions on your income taxes and have until April 15th to fully fund the IRA account, how does the IRS check the validity of your contribution? Do they wait until the brokerage or bank reports something at the end of the year? I'm just curious to see how the threads are tied between what's reported versus actually funded.
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Re: Really Stupid IRA Question
Old 03-05-2007, 04:47 PM   #2
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Re: Really Stupid IRA Question

IRS usually is about 18 months behind on auditing/reviewing returns. However, if they find you make an IRA deduction that is not borne out at years end by an IRS Form 5498 submitted by the institution you made the deposit to then I would expect you will get a letter from them to provide evidence to substantiate the deduction. If you cannot they will then bill you for the taxes due PLUS interest and maybe even some PENALTY. Of course they could always allege FRAUD on your part and actually do a full AUDIT with possible criminal charges. It sure is not worth in, IMHO, under any circumstances to try something like that, especially for the little you could save on taxes.
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Re: Really Stupid IRA Question
Old 03-05-2007, 04:51 PM   #3
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Re: Really Stupid IRA Question

Quote:
Originally Posted by OAG
IRS usually is about 18 months behind on auditing/reviewing returns. However, if they find you make an IRA deduction that is not borne out at years end by an IRS Form 5498 submitted by the institution you made the deposit to then I would expect you will get a letter from them to provide evidence to substantiate the deduction. If you cannot they will then bill you for the taxes due PLUS interest and maybe even some PENALTY. Of course they could always allege FRAUD on your part and actually do a full AUDIT with possible criminal charges. It sure is not worth in, IMHO, under any circumstances to try something like that, especially for the little you could save on taxes.
Thanks OAG. Personally, I wasn't even thinking about attempting to pull a wild stunt like this. I was just curious as to how things are linked together from an IRS perspective.
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Re: Really Stupid IRA Question
Old 03-05-2007, 05:19 PM   #4
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Re: Really Stupid IRA Question

Can you just declare normal IRAs? Or are you allowed to declare Roth too? I figured you wouldn't since it's tax free
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Re: Really Stupid IRA Question
Old 03-05-2007, 06:02 PM   #5
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Re: Really Stupid IRA Question

Roth IRA contributions cannot be deducted from your taxes for that exact reason.

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Can you just declare normal IRAs? Or are you allowed to declare Roth too? I figured you wouldn't since it's tax free
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Re: Really Stupid IRA Question
Old 03-05-2007, 09:56 PM   #6
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Re: Really Stupid IRA Question

Since you probably WANT to maximize tax deferred accounts that is in your best interest to contribute. I would even if it wouldn't be deductible.
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