Top Ten IRA Tips
1. Note the tax year.
When you make a contribution, always write on your check (and the investment stub) the tax year for which the contribution is being made. Custodians are required to consider unmarked contributions as “current year,” and that may not be what you intended.
2. Check your statements.
Verify that your transactions are posted accurately. It’s usually easier to correct an error if you catch it right away.
3. Keep a record of each IRA.
Note where it is invested and who its beneficiaries are. In the event of your death, this information will be needed to distribute your accounts according to your wishes.
4. Pay attention to contribution limits.
For the 2009 tax year, you may contribute to your Traditional and Roth IRA(s) a maximum of 100% of earned income or $5,000 ($6,000 for persons aged 50 or older, plus a possible cost-of-living increase of $500), whichever is less.
5. Stay within the limits.
If you put more than your maximum contribution limit into your IRAs for any given tax year, you will be penalized by the Internal Revenue Service.
6. IRS Form 5498 is your tax receipt.
This form is mailed in May of each year and reflects contributions for the previous tax year. It is mailed in May because IRA contributions for one tax year can be made into April of the following calendar year.
This form also reports the IRA’s year-end value and any rollover, recharacterization or conversion contributions made to the IRA. Review the form carefully to ensure that it accurately reflects the contributions you made and reported on your tax return.
7. IRA transfers are not considered contributions.
Transfers of assets from one IRA to another generally do not affect your maximum contribution amount. This is money that was contributed and credited to a prior tax year, so it is not generally counted again if you move it from one account to another.
8. Check details before rolling over.
If you are transferring an IRA to Pax World, contact the custodian of your current IRA to ensure you have the firm’s correct address and ask if there are any special requirements such as a signature guarantee or the inclusion of a copy of your statement. This will avoid delays in processing your request.
9. Get informed before converting to Roth.
There are tax consequences for converting a Traditional IRA to a Roth IRA. Be sure you understand what they are before initiating a conversion.
If you decide to proceed, you should call the custodian and ask for conversion forms to fill out. Using the custodian’s form is the best way to ensure that you provide all the required information and avoid unnecessary penalties.
10. When in doubt, ASK.
If you don’t understand something your tax advisor tells you to do, get clarification. After all, it’s your money!
Please note that the information above does not constitute tax advice. State tax regulations may differ from federal tax regulations. Always consult your personal tax advisor before making any tax-related investment decisions.