roth IRA contributions

[yerffej]

Hi!

I have a quick question. In 2007, I made $11,000 and put $4000 into a Roth IRA.

I'm going to quit my job in May of 2008. My total income at that point for 2008 will be about $4000.

How much can I put into my IRA for 2008 ($5000 limit) if I don't earn anymore money during the year? Can I use some of the money I earned in 2007 and not worry about it?

Thanks!

 

[travelover]

I think your contribution can't exceed your income. But you can still put money into your 2007 IRA until April 15th.

 

[Goonie]

Although there is a $5000 limit for 2008 IRA's, you can only contribute that much if you made that much or more earned income. Unfortunately, if you only earn ~$4000 in 2008, you can only contribute up to that ~$4000 amount, not the $5000 limit.

 

[yerffej]

So, theoretically, if I put the extra $1000 in there...are IRS agents gonna bust open my front door and drag me outta my bed and into their torture chambers come tax time?

 

[eridanus]

So, theoretically, if I put the extra $1000 in there...are IRS agents gonna bust open my front door and drag me outta my bed and into their torture chambers come tax time?

No, but they'll send you a scary packet in 2 years that asks you about it. At the least, you'll have to withdraw the $1000 + earnings, which will be a PITA.

 

[REWahoo]

So, theoretically, if I put the extra $1000 in there...are IRS agents gonna bust open my front door and drag me outta my bed and into their torture chambers come tax time?

No. But the IRS will disallow the deduction, send you a nasty letter, [-]mark you as a tax cheat subject to annual audits for the next 25 years[/-] and make you file an amended return.

 

[Niko]

So, theoretically, if I put the extra $1000 in there...are IRS agents gonna bust open my front door and drag me outta my bed and into their torture chambers come tax time?

Maybe.

Don't do it. Because we have a "self-report" tax system, the IRS has incredibly stiff penalties for even small things like this. If you try and get the extra deduction, you'll likely come to regret it later.

 

[SecondCor521]

Nope, as others have said you can only contribute up to your earned income for the year.

I think it will be sooner than 2 years, because their big IRS computer sees both your tax return which you file with them and your IRA contribution, which your IRA custodian informs them about (on Form 5498, I believe). It's a simple matter of comparing the two numbers and sending you a computer generated letter.

Also, the law says that you owe a 6% excess contribution tax on the amount that you overcontribute for each year that you leave it in there. I'd be willing to bet that they'd tell you to pay that tax as well as take the $1,000 extra plus any attributable earnings out of your IRA.

2Cor521

 

[youbet]

So, theoretically, if I put the extra $1000 in there...are IRS agents gonna bust open my front door and drag me outta my bed and into their torture chambers come tax time?

This violation is extremely easy, and as SecondCor521 says, actually automatic for the IRS to catch. If you ignore the computer generated letter they send, as you seem prone to do by the tone of your post, then consequences will mount, possibly eventually resulting in the description you gave. What you're suggesting makes about as much sense as understating your income when it is reported on a W2 form by your employer. Detection is automatic and assured.

Why not venture into some other area of cheating where there is at least some chance you'll go undetected? Try doing some work for cash and not reporting it. Or maybe exaggerating your med expenses. Or......

 

[mn54]

don't look for trouble with the IRS. You don't want to give them any reason to pull your file and start looking it over. It's not worth it.