This guide outlines the reporting process for Traditional and Roth IRA contributions, including key forms, deadlines, and contribution limits. It also covers common filing errors and how to address them, helping you stay aligned with IRS guidelines.
Accurately reporting your IRA contributions is essential for ensuring you receive the correct tax benefits and avoid costly errors. Understanding the differences between a Traditional and Roth IRA can help you determine the right reporting method for your situation. This guide outlines the key steps to ensure your contributions are properly reported and highlights common mistakes to avoid.
What Are IRA Contributions?
Contributions are the money you deposit into your Individual Retirement Account (IRA) to save for retirement. IRAs offer tax advantages that allow you to save more efficiently for the future. Understanding the specific rules for each type of IRA is essential to ensure you report your contributions correctly and make the most of these tax benefits.
For 2025, you can contribute up to $7,000 to both Traditional and Roth IRAs. If you're 50 or older, you can make a catch-up contribution of an extra $1,000, bringing your total annual contribution to $8,000.
Our guide on Traditional and Roth IRAs offers more information on eligibility requirements and tax deductions.
IRA Contributions, Withdrawals & Reporting Overview
Below is an overview of IRA contributions, withdrawals, and reporting requirements, based on IRS guidelines, to help you stay on track with your taxes:
Traditional IRA
- Contributions: Are made with pre-tax dollars and may reduce your taxable income, which can be a benefit if you’re looking to reduce your taxes now.
- Withdrawals: You can start making withdrawals without penalties at age 59½.
- Required Minimum Distribution (RMD): You also need to start taking RMDS by age 73.
- Reporting: Contributions reported on Form 5498.
Roth IRA
- Contributions: Are made with after-tax dollars, any increase in the value of your Roth IRA will be tax-free.
- Withdrawals: Once you're 59½ and have had the account for at least five years, both contributions and earnings can be withdrawn tax-free.
- Required Minimum Distribution (RMD): There are no RMDs during the account holder’s lifetime.
- Reporting: Contributions reported on Form 5498.
The IRS provides detailed reporting instructions and forms related to Traditional and Roth IRAs.
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Get startedCommon IRA Tax Filing Mistakes to Avoid
Even with careful tracking, errors can impact your tax savings. Let's take a moment to identify common IRA filing mistakes and discuss how to avoid them.
1. Over-Contributing Throughout the Year
Maximizing your IRA contributions is a proven strategy for growing your retirement savings, but it’s important to avoid going over the limit. If you contribute more than the limit, you'll face a 6% penalty on the extra amount.
How to Avoid It: Act Quickly
If you've overcontributed to your IRA, you have until the tax filing deadline (typically April 15) to correct it, unless you've applied for an extension. If you have an extension, you have until the extended filing deadline (usually October 15) to remove the excess contributions.
If you choose to leave the excess in the account, you'll face a 6% penalty on the excess amount for each year it remains in the IRA until the excess is removed. After removing the excess contributions for the current year, you can make new contributions for the following year, as long as those contributions comply with that year's contribution limits.
Learn more about excess contributions from the IRS.
2. Forgetting About Form 8606
If you’ve contributed post-tax dollars to your IRA, you may consider filing Form 8606. This form tracks non-deductible contributions, ensuring you’re not taxed again when you withdraw.
Form 8606 is also typically used for Roth IRA distributions, non-deductible withdrawals from other IRAs, or Roth conversions (when converting a Traditional IRA into a Roth IRA). Missing or incorrect filings can result in penalties: including $50 for not filing and $100 for errors.
How to Avoid It: Stay Organized and Informed
Keep track of post-tax contributions to your IRA and consider reporting them on your taxes to avoid paying taxes on the same money twice. If you take distributions from a Roth IRA or any IRA after making non-deductible contributions, or if you convert funds to a Roth IRA, those actions will need to be reported correctly on Form 8606.
Learn more about Form 8606 from the IRS.
3. Not Updating IRA Beneficiaries
Failing to keep your IRA beneficiaries up to date can lead to unwanted complications for your heirs. If you haven’t updated your beneficiary designations, your assets might not go to the people you intend, potentially causing delays or disputes.
How to Avoid It: Review and Update Regularly
To avoid this issue, make it a habit to review and update your IRA beneficiaries regularly, especially after major life events like marriage, divorce, or the birth of a child. Ensure that your designations reflect your current wishes, and remember that beneficiary designations generally override your will. Regularly checking this can give you peace of mind, knowing that your assets will go to the right people when the time comes.
4. Not Accounting for Required Minimum Distributions (RMDs)
Once you turn 73, you must begin taking money out of your IRA — including Traditional IRAs, SEP IRAs, and SIMPLE IRAs — each year. This is known as a Required Minimum Distribution (RMD).
(Note: Roth IRAs are exempt from RMDs during the account holder's lifetime)
Whether you're working part-time or fully retired, the rule applies to everyone with a Traditional IRA. If you miss the deadline to take your RMD by April 1st of the year you turn 73, you’ll face a hefty penalty of 25% on the amount you should have withdrawn.
How to Avoid It: Don’t Miss Your RMD Deadline
If you catch the mistake and make the withdrawal before the IRS processes the penalty, you can reduce the fee. To avoid unnecessary penalties, be sure to mark your calendar and keep track of your RMD deadlines. Staying ahead of these requirements will ensure you’re compliant and avoid costly mistakes.
When to Report Your IRA Contributions
Staying compliant and maximizing the benefits of your IRA contributions requires more than just accurate paperwork. Adhering to contribution deadlines is equally essential. Missing a deadline can result in missed tax advantages and potential penalties. Here’s what you need to know about contribution deadlines:
For Traditional and Roth IRAs:
You have until the tax filing deadline, typically April 15, to make contributions for the tax year to both Traditional and Roth IRAs. If you file for an extension, you have until the extended filing deadline, typically October 15, to submit your tax return.
(Note: Filing an extension for your tax return does not extend the deadline for making IRA contributions.)
Stay on Track with IRA Contributions with PensionBee
By staying organized and following the reporting guidelines for Traditional, Roth, and SEP IRAs, you can ensure to remain on course with your IRA contributions. If you're looking for an easy way to keep track of your retirement accounts, PensionBee makes it simple to consolidate your IRAs and 401(k)s into one easy-to-manage account with a modern and award winning app. Combine savings, manage transfers, and keep saving through contributions — all in one place. Every customer gets a personal rollover manager — we call them BeeKeepers - to help guide you through a simple, stress-free process, so you can feel confident about your retirement.
