Question re: Tax Deductible IRA contributions

[tinapbeana]

Since my accountant is busy I thought I'd come here, it's the next best thing!

I have never itemized, as my standard deduction has always more than covered things like my 401k contribution. We bought a house this year, and I would love to be able to itemize! Bad news is I also got downsized (week before we closed, no less!) so I'm guessing the 6 months of 401k contributions + interest on the home will still not be greater than my standard deduction.

Here's my question: if I roll my 401k into a regular IRA, can I deduct the $4k max contribution to the IRA rather than deduct the contributions I made the 1st 6 months of this year to the 401k?

[Squantum]

Re: Question re: Tax Deductible IRA contributions

I don't think so, Tina. Your 401K contributions are made from your paycheck -- pre-tax. You never paid tax on them so they are not tax deductible. Rolling them into an IRA wouldn't affect this, though rolling to an IRA is certainly possible.

Disclaimer -- I am not a lawyer nor am I a tax advisor.

But, maybe the 6 months' interest on your house plus any charitable contributions plus job hunting expenses would be enough for you to itemize.

[tinapbeana]

Re: Question re: Tax Deductible IRA contributions

see, i though contributions to a tradition IRA were tax deductable? or is that a roth?

[Squantum]

Re: Question re: Tax Deductible IRA contributions

that is true, but you are not contributing new money -- unless I misunderstood your question. In other words, with a traditional IRA, you are sending in post-tax money, that was originally part of your net paycheck. you have already paid taxes on that money, so it is tax deducible.

I don't think this is the case if you roll pre-tax 401K money into an IRA.

If I'm wrong on this, it would be good to know!

[sweeps]

Re: Question re: Tax Deductible IRA contributions

Squantum is right. If you claimed your rollover as a tax deduction, you would be double-dipping. Your taxable income on your W-2 will already be reduced to reflect your 401k contributions.

Yes, direct contributions to a traditional IRA are tax-deductible, but not rollovers.

[tinapbeana]

Re: Question re: Tax Deductible IRA contributions

yeah, that's what i was afraid of... bah, no itemization this year either!

[sweeps]

Re: Question re: Tax Deductible IRA contributions

Just FYI, a traditional IRA deduction has no effect on itemized deductions. It's an "above-the-line" deduction which means it is applied before Schedule A where all the itemized deductions are listed.

[tinapbeana]

Re: Question re: Tax Deductible IRA contributions

double bah! oh well, there's alway next year *g*

[RJB1180]

Re: Question re: Tax Deductible IRA contributions

Sweeps is right unless you are making an additional 4k contribution which you are allowed to do.

[Squantum]

Re: Question re: Tax Deductible IRA contributions

Another couple of notes:

- property taxes and points are also generally tax deductible if you itemize.
- IRA tax deductibility does not depend on itemization (unless this has changed since the introduction of the ROTH IRA) -- I deducted contributions to my traditional IRA when I did not itemize -- although there are income limits and eligibility for work retirement plans that do affect their deductibility.

[tinapbeana]

Re: Question re: Tax Deductible IRA contributions

i'm lucky to live in a low-cost area of the country, but as a result my property taxes and interest paid on the mortage will likely still be less than my standard deduction if i file individually, and will definitely be less if DH and i file jointly.

i currently do not have an ira but want to roll my 401k from my previous employer into a traditional ira and then later convert to a roth. i intended on beginning this process in january to fall under tax year 2007, but wanted to make sure i wasn't losing any tax benefits in 2006 by doing so. since i'm not, i'll wait.

thanks all for the info!

[safari]

Re: Question re: Tax Deductible IRA contributions

For how many months have you owned the house? I am pretty sure that if you combine the mortgage interest with all other things that you can deduct, your itemized deduction will be greater than the standard deduction. Here are the most common deductions:

- Mortgage interest payments
- Mortgage points (if any) that you paid to obtain the loan
- Property tax. If you don't have an escrow account, you should pay both installment payments this year, so you can deduct the whole amount.
- Your state income tax. If you live in a state without income tax, you can choose to deduct sales taxes that you paid during the year.
- State disability insurance that was deducted from your paycheck.
- Medical expenses that exceed 7.5% of your adjusted gross income
- Charitable donations
- Vehicle license fee

Those are just the most common deductions. You should consult with your accountant regarding any other possible deductions that you may qualify for. A lot of people incorrectly assume that it only makes sense to itemize if they own a house, which is not true. For example, my sister doesn't own a house, but her state tax alone with greater than the standard federal deduction, so itimizing her federal tax return helped her save some money. For the state tax return she chose the standard deduction because state taxes can only be deducted on the federal tax form. This is another thing that many people don't realize; you can itemize only the federal tax return and go with the standard deduction on the state tax return.

[tinapbeana]

Re: Question re: Tax Deductible IRA contributions

- Mortgage interest payments
- Mortgage points (if any) that you paid to obtain the loan
- Property tax. If you don't have an escrow account, you should pay both installment payments this year, so you can deduct the whole amount.
- Your state income tax. If you live in a state without income tax, you can choose to deduct sales taxes that you paid during the year.
- State disability insurance that was deducted from your paycheck.
- Medical expenses that exceed 7.5% of your adjusted gross income
- Charitable donations
- Vehicle license fee

we bought the house 7/7 of this year. no points on the mortgage, and we're going to have as est $3116 in interest.

property tax will be about $700 not escrowed and due in one lump sum in december.

no medical expenses that exceed 7.5% of adjusted gross income

vehicle fee = $24

donation to united way of approx $240 is the only thing we have documented

state income taxes paid between both DH and myself are minimal but might be worth looking into

[safari]

Re: Question re: Tax Deductible IRA contributions

Property tax is only $700? Where do you live so you could buy a house for $70K?

[creditcardfree]

Re: Question re: Tax Deductible IRA contributions

In the year that you do convert your traditional ira (rollover) to a roth, that money will be taxed as current income. But you probably already knew this!!

Also, last year I donated clothes and household goods to various charities. I wrote down everything I donated, took pictures, kept the receipt and then used It's Deductible to calculated the value of the items. I was able to itemize these donations to the tune of almost $1500.00. Document and keep receipts and the money is yours! So since we are only in the 15% tax bracket this save us $225.00 in taxes. Something to think about for next year.