2018 Publication 590 A

Transcript

1 Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 10 Ok to Print Draft Fileid: ... ions/P590A/2018/A/XML/Cycle05/source (Init. & Date) _______ AH XSL/XML Page 1 of 61 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury Contents Internal Revenue Service ... 1 What's New for 2018 2 What’s New for 2019 ... Publication 590-A Cat. No. 66302J Reminders ... 2 Introduction ... 3 5 Chapter 1. Traditional IRAs ... Contributions ... 5 Who Can Open a Traditional IRA? When Can a Traditional IRA Be Opened? ... 6 to Individual 6 How Can a Traditional IRA Be Opened? ... ... 8 How Much Can Be Contributed? ... When Can Contributions Be Made? 9 Retirement How Much Can You Deduct? 10 ... What if You Inherit an IRA? 20 ... Arrangements ... Can You Move Retirement Plan Assets? 20 When Can You Withdraw or Use Assets? ... 31 What Acts Result in Penalties or Additional (IRAs) ... Taxes? 33 38 ... Chapter 2. Roth IRAs For use in preparing What Is a Roth IRA? ... 39 39 ... When Can a Roth IRA Be Opened? Returns 2018 Can You Contribute to a Roth IRA? 39 ... Can You Move Amounts Into a Roth IRA? ... 44 Chapter 3. Retirement Savings Contributions Credit (Saver's Credit) ... 46 ... 48 Chapter 4. How To Get Tax Help 51 Appendices ... ... 59 Index What's New for 2018 Extended rollover period for qualified plan loan off- For distributions made in tax years sets in 2018 or later. beginning after December 31, 2017, you have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to roll over a qualified Time plan loan offset amount. For more information, see in chapter 1. Limit for Making a Rollover Contribution No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made after December 31, 2017, cannot be re- characterized as having been made to a traditional IRA. in chap- Recharacterizations For more information, see ter 1. Modified AGI limit for traditional IRA contributions. For 2018, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is re- duced (phased out) if your modified AGI is: Get forms and other information faster and easier at: • • IRS.gov (English) 한국어 ( IRS.gov/Korean ) More than $101,000 but less than $121,000 for a mar- • (Español) IRS.gov/Spanish • (P усский) IRS.gov/Russian • ried couple filing a joint return or a qualifying • ( IRS.gov/Chinese (TiếngViệt) IRS.gov/Vietnamese • ) 中文 widow(er), Dec 21, 2018

2 Page 2 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. More than $63,000 but less than $73,000 for a single Modified AGI limit for Roth IRA contributions in- • individual or head of household, or For 2019, your Roth IRA contribution limit is re- creased. duced (phased out) in the following situations. Less than $10,000 for a married individual filing a sep- • Your filing status is married filing jointly or qualifying arate return. • widow(er) and your modified AGI is at least $193,000. Modified AGI limit for certain married individuals. You can’t make a Roth IRA contribution if your modi- If you are married and your spouse is covered by a retire- fied AGI is $203,000 or more. ment plan at work and you aren’t, and you live with your Your filing status is single, head of household, or mar- • spouse or file a joint return, your deduction is phased out if ried filing separately and you didn’t live with your your modified AGI is more than $189,000 (up from spouse at any time in 2019 and your modified AGI is $186,000 for 2017) but less than $199,000 (up from at least $122,000. You can’t make a Roth IRA contri- $196,000 for 2017). If your modified AGI is $199,000 or bution if your modified AGI is $137,000 or more. more, you can’t take a deduction for contributions to a tra- ditional IRA. Your filing status is married filing separately, you lived • with your spouse at any time during the year, and your Modified AGI limit for Roth IRA contributions. For modified AGI is more than zero. You can’t make a 2018, your Roth IRA contribution limit is reduced (phased Roth IRA contribution if your modified AGI is $10,000 out) in the following situations. or more. Your filing status is married filing jointly or qualifying • widow(er) and your modified AGI is at least $189,000. You can’t make a Roth IRA contribution if your modi- Reminders fied AGI is $199,000 or more. Your filing status is single, head of household, or mar- • For the latest information about Future developments. ried filing separately and you didn’t live with your developments related to Pub. 590-A, such as legislation spouse at any time in 2018 and your modified AGI is . enacted after it was published, go to IRS.gov/Pub590A at least $120,000. You can’t make a Roth IRA contri- Qualified disaster tax relief. Special rules provide for bution if your modified AGI is $135,000 or more. tax-favored withdrawals and repayments from certain re- Your filing status is married filing separately, you lived • tirement plans for taxpayers who suffered economic los- with your spouse at any time during the year, and your ses as a result of Hurricane Harvey or Tropical Storm Har- modified AGI is more than zero. You can’t make a vey, Hurricane Irma, Hurricane Maria, or the California Roth IRA contribution if your modified AGI is $10,000 wildfires. See Pub. 976, Disaster Relief, for information on or more. these special rules. Also, see the Instructions for Form 8915B, Qualified 2017 Disaster Retirement Plan Distribu- tions and Repayments, for more information on these new rules. What’s New for 2019 Disaster tax relief is also available for taxpayers who Modified AGI limit for traditional IRA contributions in- suffered economic losses as a result of disasters declared creased. For 2019, if you are covered by a retirement by the President under section 401 of the Robert T. Staf- plan at work, your deduction for contributions to a tradi- ford Disaster Relief and Emergency Assistance Act during tional IRA is reduced (phased out) if your modified AGI is: calendar year 2016. See Pub. 976 and the Instructions for 2016 and 2017 Form 8915A, Qualified 2016 Disaster Re- More than $103,000 but less than $123,000 for a mar- • tirement Plan Distributions and Repayments, for more in- ried couple filing a joint return or a qualifying formation on these provisions. widow(er), An IRA is sub- IRAs and unrelated business income. More than $64,000 but less than $74,000 for a single • ject to tax on unrelated business income if it carries on an individual or head of household, or unrelated trade or business. An unrelated trade or busi- Less than $10,000 for a married individual filing a sep- • ness means any trade or business regularly carried on by arate return. the IRA or by a partnership of which it is a member. For Unrelated business income under more information, see Modified AGI limit for certain married individuals , later. What Acts Result in Penalties or Additional Taxes If you are married and your spouse is cov- increased. IRA interest. Although interest earned from your IRA is ered by a retirement plan at work and you aren’t, and you generally not taxed in the year earned, it isn’t tax-exempt live with your spouse or file a joint return, your deduction interest. Tax on your traditional IRA is generally deferred is phased out if your modified AGI is more than $193,000 until you take a distribution. Don’t report this interest on (up from $189,000 for 2018) but less than $203,000 (up your return as tax-exempt interest. For more information from $199,000 for 2018). If your modified AGI is $203,000 on tax-exempt interest, see the instructions for your tax re- or more, you can’t take a deduction for contributions to a turn. traditional IRA. Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Page 2 Publication 590-A (2018)

3 Page 3 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. . Photographs of missing children se- Although we can’t respond individually to each com- Children® (NCMEC) ment received, we do appreciate your feedback and will lected by the Center may appear in this publication on pa- consider your comments as we revise our tax forms, in- ges that would otherwise be blank. You can help bring these children home by looking at the photographs and structions, and publications. calling 1-800-THE-LOST (1-800-843-5678) if you recog- Visit Ordering forms and publications. IRS.gov/ nize a child. FormsPubs to download forms and publications. Other- to order current IRS.gov/OrderForms wise, you can go to and prior-year forms and instructions. Your order should arrive within 10 business days. Introduction Tax questions. If you have a tax question not an- This publication discusses contributions to individual re- swered by this publication, check IRS.gov and How To tirement arrangements (IRAs). An IRA is a personal sav- at the end of this publication. Get Tax Help ings plan that gives you tax advantages for setting aside money for retirement. For information about distributions Useful Items from an IRA, see Pub. 590-B. You may want to see: Two tax What are some tax advantages of an IRA? advantages of an IRA are that: Publications Contributions you make to an IRA may be fully or par- • 590-B 590-B Distributions from Individual Retirement tially deductible, depending on which type of IRA you Arrangements (IRAs) have and on your circumstances; and Retirement Plans for Small Business (SEP, 560 560 Generally, amounts in your IRA (including earnings • SIMPLE, and Qualified Plans) and gains) aren’t taxed until distributed. In some ca- Tax-Sheltered Annuity Plans (403(b) Plans) 571 571 ses, amounts aren’t taxed at all if distributed accord- ing to the rules. 575 Pension and Annuity Income 575 This publication discusses What's in this publication? 939 General Rule for Pensions and Annuities 939 contributions to traditional and Roth IRAs. It explains the Forms (and Instructions) rules for: Setting up an IRA, W-4P W-4P Withholding Certificate for Pension or Annuity • Payments Contributing to an IRA, • Distributions From Pensions, Annuities, 1099-R 1099-R Transferring money or property to and from an IRA, • Retirement or Profit-Sharing Plans, IRAs, and Insurance Contracts, etc. Taking a credit for contributions to an IRA. • Savings Incentive Match Plan for 5304-SIMPLE 5304-SIMPLE It also explains the penalties and additional taxes that Employees of Small Employers (SIMPLE)—Not apply when the rules aren’t followed. To assist you in for Use With a Designated Financial Institution complying with the tax rules for IRAs, this publication con- 5305-S 5305-S SIMPLE Individual Retirement Trust Account tains worksheets and sample forms which can be found throughout the publication and in the appendices at the 5305-SA SIMPLE Individual Retirement Custodial 5305-SA back of the publication. Account The rules that you must How to use this publication. Savings Incentive Match Plan for 5305-SIMPLE 5305-SIMPLE follow depend on which type of IRA you have. Use Table Employees of Small Employers (SIMPLE)—for to help you determine which parts of this publication to I-1 Use With a Designated Financial Institution read. Also use Table I-1 if you were referred to this publi- Additional Taxes on Qualified Plans (Including 5329 5329 cation from instructions to a form. IRAs) and Other Tax-Favored Accounts Comments and suggestions. We welcome your com- 5498 5498 IRA Contribution Information ments about this publication and your suggestions for fu- ture editions. Nondeductible IRAs 8606 8606 You can send us comments through IRS.gov/ 8815 Exclusion of Interest From Series EE and I 8815 . Or you can write to: FormComments U.S. Savings Bonds Issued After 1989 Internal Revenue Service 8839 Qualified Adoption Expenses 8839 Tax Forms and Publications 8880 Credit for Qualified Retirement Savings 8880 1111 Constitution Ave. NW, IR-6526 Contributions Washington, DC 20224 Qualified 2016 Disaster Retirement Plan 8915A 8915A Distributions and Repayments Publication 590-A (2018) Page 3

4 Page 4 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 8915B 8915B See chapter 4 for information about getting these publica- Qualified 2017 Disaster Retirement Plan Distributions and Repayments tions and forms. Table I-1. Using This Publication IF you need information on ... THEN see ... chapter 1 . traditional IRAs Roth IRAs , and parts of chapter 2 chapter 1 . the credit for qualified retirement savings contributions chapter 3 . (the saver's credit) how to keep a record of your contributions to, and Appendix A . distributions from, your traditional IRA(s) SEP IRAs, SIMPLE IRAs, and 401(k) plans Pub. 560. Coverdell education savings accounts (formerly called Pub. 970. education IRAs) IF for 2018, you: THEN see ... social security benefits, received • had taxable compensation, • contributed to a traditional IRA, and • you or your spouse was covered by an employer • retirement plan, and you want to... first figure your modified adjusted gross income (AGI) Appendix B, Worksheet 1 . then figure how much of your traditional IRA contribution Appendix B, Worksheet 2 . you can deduct . Appendix B, Worksheet 3 and finally figure how much of your social security is taxable Page 4 Publication 590-A (2018)

5 Page 5 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. How Are a Traditional IRA and a Roth IRA Different? Table I-2. This table shows the differences between traditional and Roth IRAs. Answers in the middle column apply to traditional IRAs. Answers in the right column apply to Roth IRAs. Answer Question Roth IRA? Traditional IRA? Yes. You must not have reached age 1 Who by the end of the year. See 2 / Can You 70 No. You can be any age. See Is there an age limit on when I can open and contribute to a Can Open a Traditional IRA? in in chapter 2. ... Contribute to a Roth IRA? chapter 1. Yes. For 2018, you may be able to Yes. For 2018, you can contribute to a contribute to a Roth IRA up to: $5,500, or traditional IRA up to: • $5,500, or $6,500 if you were age 50 or older • • If I earned more than $5,500 in 2018 $6,500 if you were age 50 or older by the end of 2018, • ($6,500 if I was 50 or older by the end of by the end of 2018. but the amount you can contribute may 2018), is there a limit on how much I can There is no upper limit on how much be less than that depending on your contribute to a ... you can earn and still contribute. See income, filing status, and if you How in How Much Can Be Contributed? contribute to another IRA. See Much Can Be Contributed? chapter 1. and Table 2-1 in chapter 2. Yes. You may be able to deduct your contributions to a traditional IRA depending on your income, filing No. You can never deduct contributions status, whether you are covered by a Can I deduct contributions to a ... What Is a Roth IRA? to a Roth IRA. See retirement plan at work, and whether in chapter 2. you receive social security benefits. in See How Much Can You Deduct? chapter 1. Not unless you make nondeductible No. You don’t have to file a form if you contributions to your traditional IRA. In Do I have to file a form just because I contribute to a Roth IRA. See that case, you must file Form 8606. See contribute to a ... Nondeductible Contributions Contributions not reported in chapter 2. in chapter 1. Who Can Open 1. a Traditional IRA? Traditional IRAs You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received • Introduction taxable compensation during the year, and 1 This chapter discusses the original IRA. In this publica- 2 You weren’t age 70 / by the end of the year. • tion, the original IRA (sometimes called an ordinary or reg- You can have a traditional IRA whether or not you are ular IRA) is referred to as a “traditional IRA.” A traditional covered by any other retirement plan. However, you may IRA is any IRA that isn’t a Roth IRA or a SIMPLE IRA. The not be able to deduct all of your contributions if you or following are two advantages of a traditional IRA. your spouse is covered by an employer retirement plan. You may be able to deduct some or all of your contri- • , later. How Much Can You Deduct See butions to it, depending on your circumstances. If both you and Both spouses have compensation. Generally, amounts in your IRA, including earnings • 1 your spouse have compensation and are under age 70 / 2 , and gains, aren’t taxed until they are distributed. each of you can open an IRA. You can’t both participate in the same IRA. If you file a joint return, only one of you needs to have compensation. Chapter 1 Traditional IRAs Page 5

6 Page 6 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Table 1-1. Compensation for Purposes What Is Compensation? of an IRA Generally, compensation is what you earn from working. ... ... Doesn’t include Includes For a summary of what compensation does and doesn’t earnings and profits from Table 1-1 . Compensation includes all of the include, see property. items discussed next (even if you have more than one wages, salaries, etc. type). interest and dividend income. Wages, salaries, tips, professional Wages, salaries, etc. commissions. fees, bonuses, and other amounts you receive for provid- pension or annuity ing personal services are compensation. The IRS treats income. self-employment income. as compensation any amount properly shown in box 1 deferred compensation. (Wages, tips, other compensation) of Form W-2, Wage alimony and separate maintenance. and Tax Statement, provided that amount is reduced by income from certain any amount properly shown in box 11 (Nonqualified partnerships. plans). Scholarship and fellowship payments are compen- nontaxable combat pay. sation for IRA purposes only if shown in box 1 of Form any amounts you exclude W-2. from income. Commissions. An amount you receive that is a percent- age of profits or sales price is compensation. What Isn’t Compensation? If you are self-employed (a Self-employment income. Compensation doesn’t include any of the following items. sole proprietor or a partner), compensation is the net Earnings and profits from property, such as rental in- • earnings from your trade or business (provided your per- come, interest income, and dividend income. sonal services are a material income-producing factor) re- Pension or annuity income. duced by the total of: • Deferred compensation received (compensation pay- The deduction for contributions made on your behalf • • ments postponed from a past year). to retirement plans, and Income from a partnership for which you don’t provide The deduction allowed for the deductible part of your • • services that are a material income-producing factor. self-employment taxes. Compensation includes earnings from self-employment Conservation Reserve Program (CRP) payments re- • even if they aren’t subject to self-employment tax because ported on Schedule SE (Form 1040), line 1b. of your religious beliefs. Any amounts (other than combat pay) you exclude • from income, such as foreign earned income and If you have a net loss from Self-employment loss. housing costs. self-employment, don’t subtract the loss from your salar- ies or wages when figuring your total compensation. Alimony and separate maintenance. For IRA purpo- When Can a Traditional IRA ses, compensation includes any taxable alimony and sep- arate maintenance payments you receive under a decree Be Opened? of divorce or separate maintenance. You can open a traditional IRA at any time. However, the Nontaxable combat pay. If you were a member of the time for making contributions for any year is limited. See U.S. Armed Forces, compensation includes any nontaxa- When Can Contributions Be Made , later. ble combat pay you received. This amount should be re- ported in box 12 of your 2018 Form W-2 with code Q. How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of or- ganizations. You can open an IRA at a bank or other fi- nancial institution or with a mutual fund or life insurance company. You can also open an IRA through your stock- broker. Any IRA must meet Internal Revenue Code re- quirements. The requirements for the various arrange- ments are discussed below. Page 6 Chapter 1 Traditional IRAs

7 Page 7 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Kinds of traditional IRAs. Your traditional IRA can be year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits be- an individual retirement account or annuity. It can be part of either a SEP or an employer or employee association fore the end of the calendar year after the year in trust account. which you receive the refund. Distributions must begin by April 1 of the year follow- • 1 Individual Retirement Account 2 ing the year in which you reach age 70 / . See Pub. 590-B for more information about Required Minimum An individual retirement account is a trust or custodial ac- Distributions (RMDs) and other distribution rules. count set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a Individual Retirement Bonds written document. The document must show that the ac- count meets all of the following requirements. The sale of individual retirement bonds issued by the fed- The trustee or custodian must be a bank, a federally • eral government was suspended after April 30, 1982. The insured credit union, a savings and loan association, bonds have the following features. or an entity approved by the IRS to act as trustee or 1 2 They stop earning interest when you reach age 70 . / • custodian. If you die, interest will stop 5 years after your death, or The trustee or custodian generally can’t accept contri- • 1 on the date you would have reached age 70 / 2 , which- butions of more than the deductible amount for the ever is earlier. year. However, rollover contributions and employer You can’t transfer the bonds. • contributions to a SEP can be more than this amount. If you cash (redeem) the bonds before the year in which Contributions, except for rollover contributions, must • 1 , you may be subject to a 10% addi- 2 / you reach age 59 , later. be in cash. See Rollovers Age tional tax. See Pub. 590-B for more information about You must have a nonforfeitable right to the amount at 1 • and other distribution Rule for Early Distributions 2 / 59 all times. rules. You can roll over redemption proceeds into IRAs. Money in your account can’t be used to buy a life in- • surance policy. SIMPLE IRAs Assets in your account can’t be combined with other • A SIMPLE IRA plan is a tax-favored retirement plan that property, except in a common trust fund or common certain small employers (including self-employed employ- investment fund. ees) can set up for the benefit of their employees. Your You must start receiving distributions by April 1 of the • participation in your employer's SIMPLE IRA plan doesn’t 1 year following the year in which you reach age 70 / 2 . prevent you from making contributions to a traditional or Required See Pub. 590-B for more information about Roth IRA. See Pub. 560 for more information about SIM- and other distribution Minimum Distributions (RMDs) PLE IRAs. rules. Simplified Employee Pension (SEP) Individual Retirement Annuity A SEP is a written arrangement that allows your employer You can open an individual retirement annuity by purchas- to make deductible contributions to a traditional IRA (a ing an annuity contract or an endowment contract from a SEP IRA) set up for you to receive such contributions. life insurance company. Generally, distributions from SEP IRAs are subject to the An individual retirement annuity must be issued in your withdrawal and tax rules that apply to traditional IRAs. See name as the owner, and either you or your beneficiaries Pub. 560 for more information about SEPs. who survive you are the only ones who can receive the benefits or payments. Employer and Employee An individual retirement annuity must meet all the fol- Association Trust Accounts lowing requirements. Your employer or your labor union or other employee as- Your entire interest in the contract must be nonforfeit- • sociation can set up a trust to provide individual retirement able. accounts for employees or members. The requirements The contract must provide that you can’t transfer any • for individual retirement accounts apply to these tradi- portion of it to any person other than the issuer. tional IRAs. There must be flexible premiums so that if your com- • pensation changes, your payment can also change. Required Disclosures This provision applies to contracts issued after No- vember 6, 1978. The trustee or issuer (sometimes called the sponsor) of The contract must provide that contributions can’t be your traditional IRA generally must give you a disclosure • more than the deductible amount for an IRA for the statement at least 7 days before you open your IRA. Chapter 1 Traditional IRAs Page 7

8 Page 8 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. However, the sponsor doesn’t have to give you the state- You When repayment contributions can be made. can’t make these repayment contributions later than the ment until the date you open (or purchase, if earlier) your date that is 2 years after your active duty period ends. IRA, provided you are given at least 7 days from that date to revoke the IRA. No deduction. You can’t deduct qualified reservist re- payments. The disclosure statement must explain certain items in plain language. For example, the statement should ex- Reserve component. The term “reserve component” plain when and how you can revoke the IRA, and include means the: the name, address, and telephone number of the person Army National Guard of the United States, • to receive the notice of cancellation. This explanation must appear at the beginning of the disclosure statement. Army Reserve, • If you revoke your IRA within the revocation period, the Naval Reserve, • sponsor must return to you the entire amount you paid. Marine Corps Reserve, • The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a Air National Guard of the United States, • trustee-to-trustee transfer) and the amount returned to Air Force Reserve, • you. These requirements apply to all sponsors. Coast Guard Reserve, or • Reserve Corps of the Public Health Service. • How Much Can Be Figuring your IRA deduction. The repayment of qualified reservist distributions doesn’t affect the amount Contributed? you can deduct as an IRA contribution. There are limits and other rules that affect the amount that Reporting the repayment. If you repay a qualified re- can be contributed to a traditional IRA. These limits and servist distribution, include the amount of the repayment rules are explained below. with nondeductible contributions on line 1 of Form 8606. Except as discussed later Community property laws. Example. In 2018, your IRA contribution limit is , each Kay Bailey Hutchison Spousal IRA Limit under $5,500. However, because of your filing status and AGI, spouse figures his or her limit separately, using his or her the limit on the amount you can deduct is $3,500. You can own compensation. This is the rule even in states with make a nondeductible contribution of $2,000 ($5,500 - community property laws. $3,500). In an earlier year, you received a $3,000 qualified reservist distribution, which you would like to repay this Brokers' commissions. Brokers' commissions paid in year. connection with your traditional IRA are subject to the con- For 2018, you can contribute a total of $8,500 to your tribution limit. For information about whether you can de- IRA. This is made up of the maximum deductible contribu- duct brokers' commissions, see Brokers' commissions , tion of $3,500; a nondeductible contribution of $2,000; later, under How Much Can You Deduct . and a $3,000 qualified reservist repayment. You contrib- ute the maximum allowable for the year. Since you are Trustees' fees. Trustees' administrative fees aren’t sub- making a nondeductible contribution ($2,000) and a quali- ject to the contribution limit. For information about whether fied reservist repayment ($3,000), you must file Form , later, Trustees' fees you can deduct trustees' fees, see 8606 with your return and include $5,000 ($2,000 + under How Much Can You Deduct . $3,000) on line 1 of Form 8606. The qualified reservist re- payment isn’t deductible. Qualified reservist repayments. If you were a member of a reserve component and you were ordered or called to Contributions on your behalf to a traditional IRA active duty after September 11, 2001, you may be able to reduce your limit for contributions to a Roth IRA. ! contribute (repay) to an IRA amounts equal to any quali- CAUTION for information about Roth IRAs. chapter 2 See fied reservist distributions (defined under Early Distribu- in Pub. 590-B) you received. You can make these re- tions General Limit payment contributions even if they would cause your total contributions to the IRA to be more than the general limit For 2018, the most that can be contributed to your tradi- on contributions. To be eligible to make these repayment tional IRA generally is the smaller of the following contributions, you must have received a qualified reservist amounts. distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. See Pub. 590-B under $5,500 ($6,500 if you are age 50 or older). • for more information on qualified re- Early Distributions taxable compensation (defined earlier) for the Your • servist distributions. year. Your qualified reservist repayments can’t be Limit. Note. This limit is reduced by any contributions to a more than your qualified reservist distributions. section 501(c)(18) plan (generally, a pension plan created Page 8 Chapter 1 Traditional IRAs

9 Page 9 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. traditional IRA. This is because Kristin, who has no com- before June 25, 1959, that is funded entirely by employee pensation, can add Carl's compensation, reduced by the contributions). − $5,500 = amount of his IRA contribution ($30,000 This is the most that can be contributed regardless of $24,500), to her own compensation (-0-) to figure her whether the contributions are to one or more traditional maximum contribution to a traditional IRA. In her case, IRAs or whether all or part of the contributions are nonde- $5,500 is her contribution limit, because $5,500 is less , later.) Quali- Nondeductible Contributions ductible. (See than $24,500 (her compensation for purposes of figuring fied reservist repayments don’t affect this limit. her contribution limit). George, who is 34 years old and single, Examples. Filing Status earns $24,000 in 2018. His IRA contributions for 2018 are limited to $5,500. Generally, except as discussed earlier under Kay Bailey Danny, an unmarried college student working part time, , your filing status has no ef- Hutchison Spousal IRA Limit earns $3,500 in 2018. His IRA contributions for 2018 are fect on the amount of allowable contributions to your tradi- limited to $3,500, the amount of his compensation. tional IRA. However, if during the year either you or your More than one IRA. If you have more than one IRA, the spouse was covered by a retirement plan at work, your limit applies to the total contributions made on your behalf deduction may be reduced or eliminated, depending on to all your traditional IRAs for the year. How Much Can You your filing status and income. See , later. Deduct If you invest in an Annuity or endowment contracts. annuity or endowment contract under an individual retire- Example. Tom and Darcy are married and both are ment annuity, no more than $5,500 ($6,500 if you are age 53. They both work and each has a traditional IRA. Tom 50 or older) can be contributed toward its cost for the tax earned $3,800 and Darcy earned $48,000 in 2018. Be- year, including the cost of life insurance coverage. If more cause of the Kay Bailey Hutchison Spousal IRA limit rule, than this amount is contributed, the annuity or endowment even though Tom earned less than $6,500, they can con- contract is disqualified. tribute up to $6,500 to his IRA for 2018 if they file a joint return. They can contribute up to $6,500 to Darcy's IRA. If they file separate returns, the amount that can be contrib- Kay Bailey Hutchison Spousal IRA uted to Tom's IRA is limited by his earned income, $3,800. Limit Less Than Maximum Contributions For 2018, if you file a joint return and your taxable com- pensation is less than that of your spouse, the most that If contributions to your traditional IRA for a year were less can be contributed for the year to your IRA is the smaller than the limit, you can’t contribute more after the due date of the following two amounts. of your return for that year to make up the difference. 1. $5,500 ($6,500 if you are age 50 or older). Rafael, who is 40, earns $30,000 in 2018. Example. 2. The total compensation includible in the gross income Although he can contribute up to $5,500 for 2018, he con- of both you and your spouse for the year, reduced by tributes only $3,000. After April 15, 2019, Rafael can’t the following two amounts. make up the difference between his actual contributions Your spouse's IRA contribution for the year to a a. for 2018 ($3,000) and his 2018 limit ($5,500). He can’t traditional IRA. contribute $2,500 more than the limit for any later year. b. Any contributions for the year to a Roth IRA on be- More Than Maximum Contributions half of your spouse. This means that the total combined contributions that If contributions to your IRA for a year were more than the can be made for the year to your IRA and your spouse's limit, you can apply the excess contribution in one year to IRA can be as much as $11,000 ($12,000 if only one of a later year if the contributions for that later year are less you is age 50 or older, or $13,000 if both of you are age 50 than the maximum allowed for that year. However, a pen- or older). alty or additional tax may apply. See Excess Contribu- tions , later, under What Acts Result in Penalties or Addi- Note. This traditional IRA limit is reduced by any con- tional Taxes . tributions to a section 501(c)(18) plan (generally, a pen- sion plan created before June 25, 1959, that is funded en- tirely by employee contributions). When Can Contributions Kristin, a full-time student with no taxable Example. Be Made? compensation, marries Carl during the year. Neither of them was age 50 by the end of 2018. For the year, Carl has taxable compensation of $30,000. He plans to con- As soon as you open your traditional IRA, contributions tribute (and deduct) $5,500 to a traditional IRA. If he and can be made to it through your chosen sponsor (trustee or Kristin file a joint return, each can contribute $5,500 to a other administrator). Contributions must be in the form of Chapter 1 Traditional IRAs Page 9

10 Page 10 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. money (cash, check, or money order). Property can’t be Contributions not required. You don’t have to contrib- contributed. ute to your traditional IRA for every tax year, even if you can. Although property can’t be contributed, your IRA may invest in certain property. For example, your IRA may pur- chase shares of stock. For other restrictions on the use of How Much Can You Deduct? funds in your IRA, see , later in Prohibited Transactions this chapter. You may be able to transfer or roll over cer- Generally, you can deduct the lesser of: tain property from one retirement plan to another. See the discussion of rollovers and other transfers later in this The contributions to your traditional IRA for the year, • . Can You Move Retirement Plan Assets chapter under or You can make a contribution to your IRA by hav- The general limit (or the Kay Bailey Hutchison • ing your income tax refund (or a portion of your re- TIP Spousal IRA limit, if applicable) explained earlier un- fund), if any, paid directly to your traditional IRA, . How Much Can Be Contributed der Roth IRA, or SEP IRA. For details, see the instructions for However, if you or your spouse was covered by an em- your income tax return or Form 8888, Allocation of Re- ployer retirement plan, you may not be able to deduct this fund. amount. See Limit if Covered by Employer Plan , later. Contributions can be made to your traditional IRA for You may be able to claim a credit for contributions each year that you receive compensation and haven’t to your traditional IRA. For more information, see TIP 1 2 . For any year in which you don’t work, / reached age 70 chapter 3 . contributions can’t be made to your IRA unless you re- ceive alimony, nontaxable combat pay, military differential Trustees' fees. Trustees' administrative fees that are bil- pay, or file a joint return with a spouse who has compen- led separately and paid in connection with your traditional , earlier. Who Can Open a Traditional IRA sation. See IRA aren’t deductible as IRA contributions. You are also Even if contributions can’t be made for the current year, not able to deduct these fees as an itemized deduction. the amounts contributed for years in which you did qualify can remain in your IRA. Contributions can resume for any These commissions are part of Brokers' commissions. years that you qualify. your IRA contribution and, as such, are deductible subject to the limits. Contribu- Contributions must be made by due date. tions can be made to your traditional IRA for a year at any Full deduction. If neither you nor your spouse was cov- time during the year or by the due date for filing your re- ered for any part of the year by an employer retirement turn for that year, not including extensions. For most peo- plan, you can take a deduction for total contributions to ple, this means that contributions for 2018 must be made one or more of your traditional IRAs of up to the lesser of: by April 15, 2019 (April 17, 2019, if you live in Maine or $5,500 ($6,500 if you are age 50 or older), or • Massachusetts). 100% of your compensation. • 1 rule. 2 / Age 70 Contributions can’t be made to your tradi- This limit is reduced by any contributions made to a 1 or for tional IRA for the year in which you reach age 70 2 / 501(c)(18) plan on your behalf. any later year. 1 You attain age 70 / 2 on the date that is 6 calendar Kay Bailey Hutchison Spousal IRA. In the case of a months after the 70th anniversary of your birth. If you were married couple with unequal compensation who file a joint born on or before June 30, 1948, you can’t contribute for return, the deduction for contributions to the traditional 2019 or any later year. IRA of the spouse with less compensation is limited to the lesser of: If Designating year for which contribution is made. 1. $5,500 ($6,500 if the spouse with the lower compen- an amount is contributed to your traditional IRA between sation is age 50 or older), or January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribu- The total compensation includible in the gross income 2. tion is for. If you don’t tell the sponsor which year it is for, of both spouses for the year reduced by the following the sponsor can assume, and report to the IRS, that the three amounts. contribution is for the current year (the year the sponsor The IRA deduction for the year of the spouse with a. received it). the greater compensation. You can file your Filing before a contribution is made. b. Any designated nondeductible contribution for the return claiming a traditional IRA contribution before the year made on behalf of the spouse with the contribution is actually made. Generally, the contribution greater compensation. must be made by the due date of your return, not including extensions. Any contributions for the year to a Roth IRA on be- c. half of the spouse with the greater compensation. Page 10 Chapter 1 Traditional IRAs

11 Page 11 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. This limit is reduced by any contributions to a section profit-sharing plans, stock bonus plans, and money pur- chase pension plans. 501(c)(18) plan on behalf of the spouse with the lesser compensation. Company A has a money purchase pension Example. plan. Its plan year is from July 1 to June 30. The plan pro- Note. If you were divorced or legally separated (and vides that contributions must be allocated as of June 30. didn’t remarry) before the end of the year, you can’t de- Bob, an employee, leaves Company A on December 31, duct any contributions to your spouse's IRA. After a di- vorce or legal separation, you can deduct only the contri- 2017. The contribution for the plan year ending on June butions to your own IRA. Your deductions are subject to 30, 2018, is made February 15, 2019. Because an amount the rules for single individuals. is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2018 tax year. Covered by an employer retirement plan. If you or A special rule applies to certain plans in which it isn’t your spouse was covered by an employer retirement plan possible to determine if an amount will be contributed to at any time during the year for which contributions were your account for a given plan year. If, for a plan year, no made, your deduction may be further limited. This is dis- amounts have been allocated to your account that are at- . Limit if Covered by Employer Plan cussed later under tributable to employer contributions, employee contribu- Limits on the amount you can deduct don’t affect the tions, or forfeitures, by the last day of the plan year, and amount that can be contributed. contributions are discretionary for the plan year, you aren’t covered for the tax year in which the plan year ends. If, af- ter the plan year ends, the employer makes a contribution Are You Covered for that plan year, you are covered for the tax year in by an Employer Plan? which the contribution is made. The Form W-2 you receive from your employer has a box Mickey was covered by a profit-sharing plan Example. used to indicate whether you were covered for the year. and left the company on December 31, 2017. The plan The “Retirement plan” box should be checked if you were year runs from July 1 to June 30. Under the terms of the covered. plan, employer contributions don’t have to be made, but if they are made, they are contributed to the plan before the Reservists and volunteer firefighters should also see due date for filing the company's tax return. Such contri- Situations in Which You Aren’t Covered , later. butions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals If you aren’t certain whether you were covered by your who have any service during the plan year. As of June 30, employer's retirement plan, you should ask your em- 2018, no contributions were made that were allocated to ployer. the June 30, 2018, plan year, and no forfeitures had been allocated within the plan year. In addition, as of that date, For purposes of the IRA deduction, fed- Federal judges. the company wasn’t obligated to make a contribution for eral judges are covered by an employer plan. such plan year and it was impossible to determine whether or not a contribution would be made for the plan For Which Year(s) Are You Covered? year. On December 31, 2018, the company decided to contribute to the plan for the plan year ending June 30, Special rules apply to determine the tax years for which 2018. That contribution was made on February 15, 2019. you are covered by an employer plan. These rules differ Mickey is an active participant in the plan for his 2019 tax depending on whether the plan is a defined contribution plan or a defined benefit plan. year but not for his 2018 tax year. No vested interest. If an amount is allocated to your Tax year. Your tax year is the annual accounting period account for a plan year, you are covered by that plan even you use to keep records and report income and expenses if you have no vested interest in (legal right to) the ac- on your income tax return. For almost all people, the tax count. year is the calendar year. Defined benefit plan. If you are eligible to participate in Defined contribution plan. Generally, you are covered your employer's defined benefit plan for the plan year that by a defined contribution plan for a tax year if amounts are ends within your tax year, you are covered by the plan. contributed or allocated to your account for the plan year This rule applies even if you: that ends with or within that tax year. However, also see Situations in Which You Aren’t Covered , later. Declined to participate in the plan, • A defined contribution plan is a plan that provides for a Didn’t make a required contribution, or • separate account for each person covered by the plan. In a defined contribution plan, the amount to be contributed Didn’t perform the minimum service required to accrue • to each participant's account is spelled out in the plan. a benefit for the year. The level of benefits actually provided to a participant de- A defined benefit plan is any plan that isn’t a defined pends on the total amount contributed to that participant's contribution plan. In a defined benefit plan, the level of account and any earnings and losses on those contribu- benefits to be provided to each participant is spelled out in tions. Types of defined contribution plans include the plan. The plan administrator figures the amount Chapter 1 Traditional IRAs Page 11

12 Page 12 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. needed to provide those benefits and those amounts are Limit if Covered by Employer Plan contributed to the plan. Defined benefit plans include pen- sion plans and annuity plans. As discussed earlier , the deduction you can take for con- tributions made to your traditional IRA depends on Example. Nick, an employee of Company B, is eligible whether you or your spouse was covered for any part of to participate in Company B's defined benefit plan, which the year by an employer retirement plan. Your deduction has a July 1 to June 30 plan year. Nick leaves Company B is also affected by how much income you had and by your on December 31, 2017. Because Nick is eligible to partici- filing status. Your deduction may also be affected by so- pate in the plan for its year ending June 30, 2018, he is cial security benefits you received. covered by the plan for his 2018 tax year. If either you or your spouse Reduced or no deduction. If you accrue a benefit for a plan No vested interest. was covered by an employer retirement plan, you may be year, you are covered by that plan even if you have no entitled to only a partial (reduced) deduction or no deduc- vested interest in (legal right to) the accrual. tion at all, depending on your income and your filing sta- tus. Situations in Which You Aren’t Covered Your deduction begins to decrease (phase out) when your income rises above a certain amount and is elimina- Unless you are covered by another employer plan, you ted altogether when it reaches a higher amount. These aren’t covered by an employer plan if you are in one of the amounts vary depending on your filing status. situations described below. To determine if your deduction is subject to the phase- out, you must determine your modified AGI and your filing Social security or railroad retirement. Coverage under Deduction Phaseout status, as explained later under . social security or railroad retirement isn’t coverage under Once you have determined your modified AGI and your fil- an employer retirement plan. Table 1-3 or Table 1-2 ing status, you can use to deter- If you receive Benefits from previous employer's plan. mine if the phaseout applies. retirement benefits from a previous employer's plan, you aren’t covered by that plan. Social Security Recipients If the only reason you participate in a plan is Reservists. and Table 1-2 Worksheet or Table 1-3 Instead of using because you are a member of a reserve unit of the Armed Appendix B of this publi- , complete the worksheets in 1-2 Forces, you may not be covered by the plan. You aren’t cation if, for the year, all of the following apply. covered by the plan if both of the following conditions are You received social security benefits. • met. You received taxable compensation. • 1. The plan you participate in is established for its em- ployees by: Contributions were made to your traditional IRA. • a. The United States, You or your spouse were covered by an employer re- • tirement plan. A state or political subdivision of a state, or b. Use the worksheets in Appendix B to figure your IRA de- An instrumentality of either (a) or (b) above. c. duction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Appendix B You didn’t serve more than 90 days on active duty 2. includes an example with filled-in worksheets to assist during the year (not counting duty for training). you. If the only reason you participate Volunteer firefighters. in a plan is because you are a volunteer firefighter, you Deduction Phaseout may not be covered by the plan. You aren’t covered by the plan if both of the following conditions are met. The amount of any reduction in the limit on your IRA de- duction (phaseout) depends on whether you or your The plan you participate in is established for its em- 1. spouse was covered by an employer retirement plan. ployees by: Covered by a retirement plan. If you are covered by an The United States, a. employer retirement plan and you didn’t receive any social A state or political subdivision of a state, or b. security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and c. An instrumentality of either (a) or (b) above. modified AGI, as shown in Table 1-2 . 2. Your accrued retirement benefits at the beginning of If your spouse is covered. If you aren’t covered by an the year won’t provide more than $1,800 per year at employer retirement plan, but your spouse is, and you retirement. didn’t receive any social security benefits, your IRA de- duction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Ta- ble 1-3 . Page 12 Chapter 1 Traditional IRAs

13 Page 13 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 1 Table 1-2. on Deduction if You Are Covered by a Retirement Plan at Effect of Modified AGI Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. IF your filing status is ... AND your modified AGI is ... THEN you can take ... a full deduction. $63,000 or less more than $63,000 or single a partial deduction. but less than $73,000 head of household $73,000 or more no deduction. $101,000 or less a full deduction. more than $101,000 married filing jointly or a partial deduction. but less than $121,000 qualifying widow(er) $121,000 or more no deduction. less than $10,000 a partial deduction. 2 married filing separately $10,000 or more no deduction. 1 Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI) , later. 2 If you didn’t live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). 1 Table 1-3. on Deduction if You Aren’t Covered by a Retirement Plan Effect of Modified AGI at Work If you aren’t covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. IF your filing status is ... AND your modified AGI is ... THEN you can take ... single, a full deduction. any amount or head of household, qualifying widow(er) married filing jointly or separately with a a full deduction. spouse who isn’t covered by a plan any amount at work $189,000 or less a full deduction. married filing jointly is with a spouse who more than $189,000 covered by a plan a partial deduction. but less than $199,000 at work no deduction. $199,000 or more with a spouse who married filing separately a partial deduction. less than $10,000 is covered by a plan $10,000 or more no deduction. 2 at work 1 Modified adjusted gross income (AGI) , later. Modified AGI (adjusted gross income). See 2 You are entitled to the full deduction if you didn’t live with your spouse at any time during the year. Modified adjusted gross income (AGI). You can use Filing status. Your filing status depends primarily on your marital status. For this purpose, you need to know if to figure your modified AGI. If you made Worksheet 1-1 contributions to your IRA for 2018 and received a distribu- your filing status is single or head of household, married tion from your IRA in 2018, see Both contributions for filing jointly or qualifying widow(er), or married filing sepa- , later. rately. If you need more information on filing status, see 2018 and distributions in 2018 Pub. 501, Exemptions, Standard Deduction, and Filing In- Don’t assume that your modified AGI is the same formation. as your compensation. Your modified AGI may in- ! CAUTION clude income in addition to your compensation If you didn’t live with your Lived apart from spouse. (discussed earlier) such as interest, dividends, and in- spouse at any time during the year and you file a separate come from IRA distributions. return, your filing status, for this purpose, is single. Chapter 1 Traditional IRAs Page 13

14 Page 14 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. If you file Form 1040, refigure the amount This is your modified AGI. Form 1040. on the page 2 “adjusted gross income” line without taking If you received distri- Income from IRA distributions. into account any of the following amounts. butions in 2018 from one or more traditional IRAs and IRA deduction. • your traditional IRAs include only deductible contributions, your distributions are fully taxable and are included in your Student loan interest deduction. • modified AGI. See Pub. 590-B for more information on Domestic production activities deduction. • distributions. Foreign earned income exclusion. • Both contributions for 2018 and distributions in Foreign housing exclusion or deduction. • 2018. If all three of the following apply, any IRA distribu- tions you received in 2018 may be partly tax free and Exclusion of qualified savings bond interest shown on • partly taxable. Form 8815. You received distributions in 2018 from one or more • Exclusion of employer-provided adoption benefits • traditional IRAs. shown on Form 8839. You made contributions to a traditional IRA for 2018. • This is your modified AGI. Some of those contributions may be nondeductible • If you file Form 1040NR, refigure the Form 1040NR. Nondeductible Contributions contributions. (See and amount on the page 1 “adjusted gross income” line with- Worksheet 1-2 , later.) out taking into account any of the following amounts. If this is your situation, you must figure the taxable part of IRA deduction. • the traditional IRA distribution before you can figure your Student loan interest deduction. • modified AGI. To do this, you can use Worksheet 1-1 in Pub. 590-B. Domestic production activities deduction. • If at least one of the above doesn’t apply, figure your Exclusion of qualified savings bond interest shown on • . Worksheet 1-1 modified AGI using Form 8815. Exclusion of employer-provided adoption benefits • shown on Form 8839. Page 14 Chapter 1 Traditional IRAs

15 Page 15 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Tony is 29 years old and single. In 2018, he Example. How To Figure Your Reduced IRA Deduction was covered by a retirement plan at work. His salary is If you or your spouse is covered by an employer retire- $67,000. His modified AGI is $80,000. Tony makes a ment plan and you didn’t receive any social security bene- $5,500 IRA contribution for 2018. Because he was cov- fits, you can figure your reduced IRA deduction by using ered by a retirement plan and his modified AGI is above . The Instructions for Form 1040 and Form Worksheet 1-2 $73,000, he can’t deduct his $5,500 IRA contribution. He 1040NR include similar worksheets that you can use in- must designate this contribution as a nondeductible con- stead of the worksheet in this publication. tribution by reporting it on Form 8606. If you or your spouse is covered by an employer retire- Repayment of reservist distributions. Nondeductible ment plan, and you received any social security benefits, contributions may include repayments of qualified reserv- , earlier. Social Security Recipients see Qualified re- ist distributions. For more information, see servist repayments under How Much Can Be Contributed , Note. If you were married and both you and your earlier. spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Form 8606. To designate contributions as nondeducti- ble, you must file Form 8606. You don’t have to designate a contribution as nonde- Reporting Deductible Contributions ductible until you file your tax return. When you file, you can even designate otherwise deductible contributions as If you file Schedule 1 (Form 1040), enter your IRA deduc- nondeductible contributions. tion on line 32 of that form. If you file Form 1040NR, enter You must file Form 8606 to report nondeductible contri- your IRA deduction on line 32 of that form. You can’t de- butions even if you don’t have to file a tax return for the duct IRA contributions on Form 1040NR-EZ. year. Self-employed. If you are self-employed (a sole proprie- A Form 8606 isn’t used for the year that you make tor or partner) and have a SIMPLE IRA, enter your deduc- a rollover from a qualified retirement plan to a tra- ! tion for allowable plan contributions on Schedule 1 (Form CAUTION ditional IRA and the rollover includes nontaxable 1040), line 28. If you file Form 1040NR, enter your deduc- amounts. In those situations, a Form 8606 is completed tion on line 28. for the year you take a distribution from that IRA. See in Distributions Fully or Partly Taxable under Form 8606 Nondeductible Contributions Pub. 590-B. Although your deduction for IRA contributions may be re- If you Failure to report nondeductible contributions. duced or eliminated, contributions can be made to your don’t report nondeductible contributions, all of the contri- or, if it applies, the IRA of up to the Kay Bailey general limit butions to your traditional IRA will be treated like deducti- Hutchison Spousal IRA limit . The difference between your ble contributions when withdrawn. All distributions from total permitted contributions and your IRA deduction, if your IRA will be taxed unless you can show, with satisfac- any, is your nondeductible contribution. tory evidence, that nondeductible contributions were made. Worksheet 1-1. Figuring Your Modified AGI Keep for Your Records Use this worksheet to figure your modified AGI for traditional IRA purposes. 1. Enter your adjusted gross income (AGI) from Form 1040, line 7; or Form 1040NR, line 35, figured without taking into account the amount from Schedule 1 (Form 1040), line 32; or Form ... 1. 1040NR, line 32 2. Enter any student loan interest deduction from Schedule 1 (Form 1040), line 33; or Form 2. ... 1040NR, line 33 3. Enter any domestic production activities deduction (DPAD) from Schedule 1 (Form 1040), ... 3. line 36; or Form 1040NR, line 34 Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45; 4. ... 4. or Form 2555-EZ, line 18 5. Enter any foreign housing deduction from Form 2555, line 50 ... 5. 6. ... Enter any excludable savings bond interest from Form 8815, line 14 6. 7. Enter any excluded employer-provided adoption benefits from Form 8839, line 28 ... 7. 8. Add lines 1 through 6. This is your Modified AGI for traditional IRA purposes ... 8. Chapter 1 Traditional IRAs Page 15

16 Page 16 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. If you overstate the amount For 2018, Tom contributed $5,500 to his IRA, and Betty Penalty for overstatement. contributed $5,500 to hers. Even though they file a joint of nondeductible contributions on your Form 8606 for any return, they must figure their IRA deduction separately. tax year, you must pay a penalty of $100 for each over- statement, unless it was due to reasonable cause. Tom can take a deduction of only $4,538. Using Work- sheet 1-2, Figuring Your Reduced IRA Deduction for You will have to Penalty for failure to file Form 8606. 2018, Tom figures his deductible and nondeductible pay a $50 penalty if you don’t file a required Form 8606, amounts as shown on Worksheet 1-2. Figuring Your Re- unless you can prove that the failure was due to reasona- duced IRA Deduction for 2018—Example 1 Illustrated . ble cause. He can choose to treat the $4,538 as either deductible or nondeductible contributions. He can either leave the Tax on earnings on nondeductible contributions. As − $4,538) of nondeductible contributions in $962 ($5,500 long as contributions are within the contribution limits, his IRA or withdraw them by April 15, 2019. He decides to none of the earnings or gains on contributions (deductible treat the $4,538 as deductible contributions and leave the or nondeductible) will be taxed until they are distributed. $962 of nondeductible contributions in his IRA. Betty figures her IRA deduction as follows. Betty can You will have a cost basis in your traditional Cost basis. treat all or part of her $5,500 contribution as either deduc- IRA if you made any nondeductible contributions. Your tible or nondeductible. This is because she isn’t covered cost basis is the sum of the nondeductible contributions to by her employer's retirement plan, and their combined your IRA minus any withdrawals or distributions of nonde- modified AGI isn’t between $189,000 and $199,000. ductible contributions. Therefore, she isn’t subject to the deduction phaseout dis- Commonly, distributions from your traditional Limit if Covered by Employer Plan cussed earlier under , IRAs will include both taxable and nontaxable . Betty de- Worksheet 1-2 and she doesn’t need to use ! CAUTION (cost basis) amounts. See Pub. 590-B for more cides to treat her $5,500 IRA contributions as deductible. information on distributions for more information. The IRA deductions of $4,538 and $5,500 on the joint return for Tom and Betty total $10,038. Example 2. For 2018, Ed and Sue file a joint return on Recordkeeping. There is a recordkeeping work- Form 1040. They are both 39 years old. Ed is covered by Appendix A. Summary Record of Tradi- sheet, his employer's retirement plan. Ed's salary is $45,000. RECORDS , that you can use to keep a tional IRA(s) for 2018 Sue had no compensation for the year and didn’t contrib- record of deductible and nondeductible IRA contributions. ute to an IRA. Sue isn’t covered by an employer plan. Ed contributed $5,500 to his traditional IRA and $5,500 to a Examples—Worksheet for traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Their combined modified AGI, which includes Reduced IRA Deduction for 2018 $2,000 interest and dividend income and a large capital The following examples illustrate the use of Worksheet gain from the sale of stock, is $188,555. . 1-2 Because the combined modified AGI is $121,000 or more and Ed is covered by his employer's plan, he can’t For 2018, Tom and Betty file a joint return Example 1. deduct any of the contribution to his traditional IRA. He on Form 1040. They are both 39 years old. They are both can either leave the $5,500 of nondeductible contributions employed. Tom is covered by his employer's retirement in his IRA or withdraw them by April 15, 2019. plan. However, Betty isn’t covered by her employer's re- Worksheet Sue figures her IRA deduction as shown on tirement plan. Tom's salary is $62,000, and Betty's is 1-2. Figuring Your Reduced IRA Deduction for 2018—Ex- $33,500. They each have a traditional IRA and their com- ample 2 Illustrated . bined modified AGI, which includes $9,000 interest and dividend income, is $104,500. Because their modified AGI is between $101,000 and $121,000 and Tom is covered by an employer plan, Tom is subject to the deduction pha- seout discussed earlier under Limit if Covered by Em- . ployer Plan Page 16 Chapter 1 Traditional IRAs

17 Page 17 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Figuring Your Reduced IRA Worksheet 1-2. Deduction for 2018 Keep for Your Records (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status.) If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's Note. deduction separately. . AND your AND your modified AGI THEN enter on is over ... filing status is ... IF you ... line 1 below ... by an are single or head of covered household $73,000 employer plan $63,000 married filing jointly or qualifying widow(er) $101,000 $121,000 married filing separately $10,000 $0 aren’t covered by an $199,000 $189,000 married filing jointly employer plan, but covered your spouse is married filing separately $0 $10,000 Enter applicable amount from table above ... 1. 1. Enter your modified AGI (that of both spouses, if married filing jointly) ... 2. 2. Note. If line 2 is equal to or more than the amount on line 1, stop here. Your IRA contributions aren’t deductible. See Nondeductible Contributions , earlier. 3. Subtract line 2 from line 1. If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, 3. whichever is less ... Multiply line 3 by the percentage below that applies to you. If the result isn’t a 4. multiple of $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200. and you are covered by an employer Married filing jointly or qualifying widow(er) • plan, multiply line 3 by 27.5% (0.275) (by 32.5% (0.325) if you are age 50 or older). 4. . ... All others, multiply line 3 by 55% (0.55) (by 65% (0.65) if you are age 50 or • older). 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 27; or Form 1040NR, line 27 (deductible part of self-employment tax), and Schedule 1 (Form 1040), line 28; or Form 1040NR, line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. If you file Form 1040 or Form 1040NR, don’t reduce your compensation by any ... 5. losses from self-employment 6. Enter contributions made, or to be made, to your IRA for 2018, but enter more than don’t $5,500 ($6,500 if you are age 50 or older). If contributions are more than $5,500 ($6,500 if , later you are age 50 or older), see 6. Excess Contributions ... 7. IRA deduction. Compare lines 4, 5, and 6. Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040 or 1040NR line for your IRA, whichever applies. If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. ... 8. Nondeductible contribution. Subtract line 7 from line 5 or 6, whichever is smaller. ... 8. Enter the result here and on line 1 of your Form 8606 Chapter 1 Traditional IRAs Page 17

18 Page 18 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2018—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status.) Note. If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. . AND your modified AGI THEN enter on AND your IF you ... line 1 below ... filing status is ... is over ... by an covered single or head of are $63,000 $73,000 employer plan household married filing jointly or qualifying widow(er) $101,000 $121,000 married filing $0 separately $10,000 aren’t covered by an $199,000 $189,000 married filing jointly employer plan, but your spouse is married filing $0 $10,000 covered separately Enter applicable amount from table above ... 121,000 1. 1. 2. Enter your (that of both spouses, if married filing jointly) ... modified AGI 104,500 2. If line 2 is equal to or more than the amount on line 1, stop here. Note. Your IRA contributions are not deductible. See Nondeductible Contributions , earlier. 3. Subtract line 2 from line 1. If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if stop here. you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) 16,500 3. compensation, whichever is less ... Multiply line 3 by the percentage below that applies to you. If the result isn’t a 4. multiple of $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200. Married filing jointly or qualifying widow(er) and you are covered by an • employer plan, multiply line 3 by 27.5% (0.275) (by 32.5% (0.325) if you are 4,538 age 50 or older). 4. . ... All others, multiply line 3 by 55% (0.55) (by 65% (0.65) if you are age 50 or • older). 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 27; or Form 1040NR, line 27 (deductible part of self-employment tax) and Schedule 1 (Form 1040), line 28; or Form 1040NR, line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. If you file Form 1040 or Form 1040NR, don’t reduce your 62,000 ... 5. compensation by any losses from self-employment 6. Enter contributions made, or to be made, to your IRA for 2018, but enter more don’t than $5,500 ($6,500 if you are age 50 or older). If contributions are more than $5,500 5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later 6. ... 7. IRA deduction. Compare lines 4, 5, and 6. Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040 or 1040NR line for your IRA, whichever applies. If line 6 is more than line 7 and you want to make a nondeductible 4,538 ... 7. contribution, go to line 8 8. Nondeductible contribution. Subtract line 7 from line 5 or 6, whichever is smaller. 962 Enter the result here and on line 1 of your Form 8606 ... 8. Page 18 Chapter 1 Traditional IRAs

19 Page 19 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2018—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status.) Note. If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. . AND your modified AGI THEN enter on AND your IF you ... line 1 below ... filing status is ... is over ... by an covered single or head of are $63,000 $73,000 employer plan household married filing jointly or qualifying widow(er) $101,000 $121,000 married filing $0 separately $10,000 aren’t covered by an $199,000 $189,000 married filing jointly employer plan, but your spouse is married filing $0 $10,000 covered separately Enter applicable amount from table above ... 199,000 1. 1. 2. Enter your (that of both spouses, if married filing jointly) ... modified AGI 188,555 2. If line 2 is equal to or more than the amount on line 1, stop here. Note. Your IRA contributions aren’t deductible. See Nondeductible Contributions , earlier. 3. Subtract line 2 from line 1. If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if stop here. you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) 10,445 3. compensation, whichever is less ... Multiply line 3 by the percentage below that applies to you. If the result isn’t a 4. multiple of $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200. Married filing jointly or qualifying widow(er) and you are covered by an • employer plan, multiply line 3 by 27.5% (0.275) (by 32.5% (0.325) if you are 2,872 age 50 or older). 4. . ... All others, multiply line 3 by 55% (0.55) (by 65% (0.65) if you are age 50 or • older). 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 27 or Form 1040NR, line 27 (deductible part of self-employment tax) and Schedule 1 (Form 1040), line 28; or Form 1040NR, line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. If you file Form 1040 or Form 1040NR, don’t reduce your 39,500 ... 5. compensation by any losses from self-employment 6. Enter contributions made, or to be made, to your IRA for 2018, but enter more don’t than $5,500 ($6,500 if you are age 50 or older). If contributions are more than $5,500 5,500 , later ($6,500 if you are age 50 or older), see 6. Excess Contributions ... 7. IRA deduction. Compare lines 4, 5, and 6. Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040 or 1040NR line for your IRA, whichever applies. If line 6 is more than line 7 and you want to make a nondeductible 2,872 contribution, go to line 8 7. ... 8. Nondeductible contribution. Subtract line 7 from line 5 or 6, whichever is smaller. 2,628 ... 8. Enter the result here and on line 1 of your Form 8606 Chapter 1 Traditional IRAs Page 19

20 Page 20 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. your own. This means that you can’t make any contributions to the IRA. It also means you can’t roll over What if You Inherit an IRA? any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the If you inherit a traditional IRA, you are called a beneficiary. IRA into which amounts are being moved is set up and A beneficiary can be any person or entity the owner choo- maintained in the name of the deceased IRA owner for the ses to receive the benefits of the IRA after he or she dies. benefit of you as beneficiary. See Pub. 590-B for more in- Beneficiaries of a traditional IRA must include in their formation. gross income any taxable distributions they receive. Like the original owner, you generally won’t owe tax on the assets in the IRA until you receive distributions from it. Inherited From Spouse You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries. If you inherit a traditional IRA from your spouse, you gen- erally have the following three choices. You can do one of More information. For more information about rollovers, the following. required distributions, and inherited IRAs, see: Treat it as your own IRA by designating yourself as 1. , later, under Can You Move Retirement Plan Rollovers • the account owner. Assets, Treat it as your own by rolling it over into your IRA, or 2. When Must You Withdraw Assets? (Required Mini- • to the extent it is taxable, into a: mum Distributions) in Pub. 590-B, and Qualified employer plan, a. When Must The discussion of IRA Beneficiaries under • You Withdraw Assets? (Required Minimum Distribu- Qualified employee annuity plan (section 403(a) b. tions) in Pub. 590-B. plan), c. Tax-sheltered annuity plan (section 403(b) plan), or Can You Move Retirement d. Deferred compensation plan of a state or local government (section 457 plan). Plan Assets? 3. Treat yourself as the beneficiary rather than treating You can transfer, tax free, assets (money or property) the IRA as your own. from other retirement programs (including traditional IRAs) You will be considered to have Treating it as your own. to a traditional IRA. You can make the following kinds of chosen to treat the IRA as your own if: transfers. Contributions (including rollover contributions) are • Transfers from one trustee to another. • made to the inherited IRA, or Rollovers. • You don’t take the required minimum distribution for a • Transfers incident to a divorce. • year as a beneficiary of the IRA. This chapter discusses all three kinds of transfers. You will only be considered to have chosen to treat the IRA as your own if: Transfers to Roth IRAs. Under certain conditions, you can move assets from a traditional IRA or from a designa- You are the sole beneficiary of the IRA, and • ted Roth account to a Roth IRA. For more information You have an unlimited right to withdraw amounts from • about these transfers, see Converting From Any Tradi- it. , later in this chapter, and Can tional IRA Into a Roth IRA However, if you receive a distribution from your de- in chapter 2. You Move Amounts Into a Roth IRA? ceased spouse's IRA, you can roll that distribution over Transfers to Roth IRAs from other retirement into your own IRA within the 60-day time limit, as long as plans. Under certain conditions, you can move assets the distribution isn’t a required distribution, even if you from a qualified retirement plan to a Roth IRA. For more aren’t the sole beneficiary of your deceased spouse's IRA. information, see Can You Move Amounts Into a Roth IRA? For more information, see When Must You Withdraw As- in chapter 2. sets? (Required Minimum Distributions) in Pub. 590-B for more information on required minimum distributions. Inherited From Someone Other Than Spouse If you inherit a traditional IRA from anyone other than your deceased spouse, you can’t treat the inherited IRA as Page 20 Chapter 1 Traditional IRAs

21 Page 21 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Tax treatment of a rollover from a traditional IRA Trustee-to-Trustee Transfer Ordi- to an eligible retirement plan other than an IRA. narily, when you have basis in your IRAs, any distribution A transfer of funds in your traditional IRA from one trustee is considered to include both nontaxable and taxable directly to another, either at your request or at the trustee's amounts. Without a special rule, the nontaxable portion of request, isn’t a rollover. This includes the situation where such a distribution couldn’t be rolled over. However, a the current trustee issues a check to the new trustee but special rule treats a distribution you roll over into an eligi- gives it to you to deposit. Because there is no distribution ble retirement plan as including only otherwise taxable to you, the transfer is tax free. Because it isn’t a rollover, it amounts if the amount you either leave in your IRAs or isn’t affected by the 1-year waiting period required be- don’t roll over is at least equal to your basis. The effect of tween rollovers. This waiting period is discussed later un- this special rule is to make the amount in your traditional . der Rollover From One IRA Into Another IRAs that you can roll over to an eligible retirement plan as For information about direct transfers from retirement large as possible. Direct rollover programs other than traditional IRAs, see Eligible retirement plans. The following are consid- , later. option ered eligible retirement plans. IRAs. Rollovers • Qualified trusts. • Generally, a rollover is a tax-free distribution to you of Qualified employee annuity plans under section • cash or other assets from one retirement plan that you 403(a). contribute to another retirement plan within 60 days you received the payment or distribution. The contribution to Deferred compensation plans of state and local gov- • the second retirement plan is called a “rollover contribu- ernments (section 457 plans). tion.” Tax-sheltered annuities (section 403(b) annuities). • An amount rolled over tax free from one retire- Note. ment plan to another is generally includible in income Time Limit for Making a Rollover when it is distributed from the second plan. Contribution Kinds of rollovers to a traditional IRA. You can roll You generally must make the rollover contribution by the over amounts from the following plans into a traditional 60th day after the day you receive the distribution from IRA. your traditional IRA or your employer's plan. A traditional IRA. • Example. You received an eligible rollover distribution An employer's qualified retirement plan for its employ- • from your traditional IRA on June 30, 2018, that you intend ees. to roll over to your 403(b) plan. To postpone including the distribution in your income, you must complete the rollover A deferred compensation plan of a state or local gov- • by August 29, 2018, the 60th day following June 30. ernment (section 457 plan). A tax-sheltered annuity plan (section 403 plan). • The IRS may waive the 60-day requirement where the failure to do so would be against equity or good con- Table 1-4 Also, see . science, such as in the event of a casualty, disaster, or Treatment of rollovers. You can’t deduct a rollover con- other event beyond your reasonable control. For excep- tribution, but you must report the rollover distribution on tions to the 60-day period, see Ways to get a waiver of the 60-day rollover requirement , later. your tax return as discussed later under Reporting roll- Reporting rollovers from employer overs from IRAs and Plan loan offset. A plan loan offset is the amount your . plans employer plan account balance is reduced, or offset, to re- pay a loan from the plan. How long you have to complete A written explanation of rollover Rollover notice. the rollover of a plan loan offset depends on what kind of treatment must be given to you by the plan (other than an IRA) making the distribution. See plan loan offset you have. For tax years beginning after Written explanation to recipients , later, for more details. December 31, 2017, if you have a qualified plan loan off- set, you will have until the due date (including extensions) You may be Kinds of rollovers from a traditional IRA. for your tax return for the tax year in which the offset oc- able to roll over, tax free, a distribution from your tradi- curs to complete your rollover. A qualified plan loan offset tional IRA into a qualified plan. These plans include the occurs when a plan loan in good standing is offset be- Federal Thrift Savings Fund (for federal employees), de- cause your employer plan terminates, or because you ferred compensation plans of state or local governments sever from employment. If your plan loan offset occurs for (section 457 plans), and tax-sheltered annuity plans (sec- any other reason, then you have 60 days from the date the tion 403(b) plans). The part of the distribution that you can offset occurs to complete your rollover. roll over is the part that would otherwise be taxable (in- Rollovers completed after the 60-day period. cludible in your income). Qualified plans may, but aren’t In the required to, accept such rollovers. absence of a waiver, amounts not rolled over within the Chapter 1 Traditional IRAs Page 21

22 Page 22 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Table 1-4. Rollover Chart The following chart indicates the rollovers that are permitted between various types of plans. Roll To Qualified Roth IRA Traditional SIMPLE SEP IRA Governme 403(b) Plan Designated 1 Roth IRA Plan IRA (pre-tax) ntal 457(b) Account (pre-tax) Plan (401(k), 403(b), or 457(b)) 2 No Yes No No Roth IRA No No No No 2 2, 7 3 4 2 Yes Yes Yes No Yes Yes , after Yes Yes Traditional 2 years IRA 2 2 2 3 4 , after Yes , after SIMPLE Yes , after Yes Yes , after Yes, after 2 Yes, after 2 No Yes 2 years years IRA years 2 years 2 years 2 years 3 4 2 2 2, 7 Yes Yes Yes Yes Yes No , after Yes Yes SEP IRA 2 years 3, 5 3 7 Yes Yes Yes Yes Governme Yes Yes Yes , after Yes, 2 years ntal 457(b) Plan 3 3, 5 4 7 Yes Yes Yes Yes Yes Yes , after Qualified Yes Yes, Roll 1 2 years Plan From (pre-tax) 3, 5 3 7 4 Yes Yes Yes, Yes Yes Yes Yes 403(b) Plan Yes , after (pre-tax) 2 years 6 Yes No Designated Yes No No No No No Roth Account (401(k), 403(b), or 457(b)) 1 Qualified plans include, for example, profit-sharing, 401(k), money purchase, and defined benefit plans. 2 Only one rollover in any 12-month period. 3 Must include in income. 4 Must have separate accounts. 5 Must be an in-plan rollover. 6 Any nontaxable amounts distributed must be rolled over by direct trustee-to-trustee transfer. 7 Applies to rollover contributions after December 18, 2015. For more information regarding retirement plans and rollovers, visit Tax Information for Retirement Plans . Ways to get a waiver of the 60-day rollover require- 60-day period don’t qualify for tax-free rollover treatment. There are three ways to obtain a waiver of the ment. You must treat them as a taxable distribution from either your IRA or your employer's plan. These amounts are tax- 60-day rollover requirement. able in the year distributed, even if the 60-day period ex- You qualify for an automatic waiver. • pires in the next year. You may also have to pay a 10% You self-certify that you met the requirements of a • additional tax on early distributions as discussed under waiver. in Pub. 590-B. Early Distributions Unless there is a waiver or an extension of the 60-day You request and receive a private letter ruling granting • rollover period, any contribution you make to your IRA a waiver. more than 60 days after the distribution is a regular contri- bution, not a rollover contribution. You How do you qualify for an automatic waiver? qualify for an automatic waiver if all of the following apply. Example. You received a distribution in late Decem- The financial institution receives the funds on your be- • ber 2018 from a traditional IRA that you don’t roll over into half before the end of the 60-day rollover period. another traditional IRA within the 60-day limit. You don’t qualify for a waiver. This distribution is taxable in 2018 You followed all of the procedures set by the financial • even though the 60-day limit wasn’t up until 2019. institution for depositing the funds into an IRA or other eligible retirement plan within the 60-day rollover Page 22 Chapter 1 Traditional IRAs

23 Page 23 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. period (including giving instructions to deposit the The rules regarding the amount that can be rol- Amount. led over within the 60-day time period also apply to the funds into a plan or IRA). amount that can be deposited due to a waiver. For exam- The funds aren’t deposited into a plan or IRA within • ple, if you received $6,000 from your IRA, the most that the 60-day rollover period solely because of an error you can deposit into an eligible retirement plan due to a on the part of the financial institution. waiver is $6,000. The funds are deposited into a plan or IRA within 1 • Extension of rollover period. If an amount distributed year from the beginning of the 60-day rollover period. to you from a traditional IRA or a qualified employer retire- It would have been a valid rollover if the financial insti- • ment plan is a frozen deposit at any time during the tution had deposited the funds as instructed. 60-day period allowed for a rollover, two special rules ex- If you don’t qualify for an automatic waiver, you can use tend the rollover period. the self-certification procedure to make a late rollover con- The period during which the amount is a frozen de- • tribution or you can apply to the IRS for a waiver of the 60- posit isn’t counted in the 60-day period. day rollover requirement. The 60-day period can’t end earlier than 10 days after • How do you self-certify that you qualify for a waiver? the deposit is no longer frozen. Pursuant to Revenue Procedure 2016-47 in Internal Reve- This is any deposit that can’t be with- Frozen deposit. IRB 2016-37 nue Bulletin 2016-37, available at , you may drawn from a financial institution because of either of the make a written certification to a plan administrator or an following reasons. IRA trustee that you missed the 60-day rollover contribu- tion deadline because of one or more of the 11 reasons The financial institution is bankrupt or insolvent. • listed in Revenue Procedure 2016-47. A plan administra- The state where the institution is located restricts with- • tor or an IRA trustee may rely on the certification in ac- drawals because one or more financial institutions in cepting and reporting receipt of the rollover contribution. the state are (or are about to be) bankrupt or insol- You may make the certification by using the model letter in vent. the appendix to the revenue procedure or by using a letter that is substantially similar. There is no IRS fee for Rollover From One IRA Into Another self-certification. A copy of the certification should be kept in your files and be available if requested on audit. You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in How do you apply for a waiver and what is the fee? the same or another traditional IRA. Because this is a roll- You can request a ruling according to the procedures out- over, you can’t deduct the amount that you reinvest in an lined in Revenue Procedure 2003-16 and Revenue Proce- IRA. dure 2018-4. The appropriate user fee of $10,000 must accompany every request for a waiver of the 60-day roll- You may be able to treat a contribution made to over requirement (see the user fee chart in Appendix A of one type of IRA as having been made to a differ- TIP Revenue Procedure 2018-4). ent type of IRA. This is called recharacterizing the in this chapter for Recharacterizations contribution. See How does the IRS determine whether to grant a more information. In determining waiver in a private letter ruling? whether to issue a favorable letter ruling granting a waiver, Generally, if you Waiting period between rollovers. the IRS will consider all of the relevant facts and circum- make a tax-free rollover of any part of a distribution from a stances, including: traditional IRA, you can’t, within a 1-year period, make a Whether errors were made by the financial institution, • tax-free rollover of any later distribution from that same that is, the plan administrator, or IRA trustee, issuer or IRA. You also can’t make a tax-free rollover of any amount custodian; distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Whether you were unable to complete the rollover • The 1-year period begins on the date you receive the within the 60-day period due to death, disability, hos- IRA distribution, not on the date you roll it over into an IRA. pitalization, incarceration, serious illness, restrictions Rules apply to the number of rollovers you can have with imposed by a foreign country, or postal error; Application of one-roll- your traditional IRAs. See Whether you used the amount distributed; and • below. over-per-year limitation How much time has passed since the date of the dis- • Example. You have two traditional IRAs, IRA-1 and tribution. IRA-2. In 2018, you made a tax-free rollover of a distribu- tion from IRA-1 into a new traditional IRA (IRA-3). You The IRS can waive only the 60-day rollover re- Note. can’t, within 1 year of the distribution from IRA-1, make a quirement and not the other requirements for a valid roll- tax-free rollover of any distribution from either IRA-1 or over contribution. For example, the IRS can’t waive the IRA-3 into another traditional IRA. IRA one-rollover-per-year rule. For 2018, the rollover from IRA-1 into IRA-3 prevents For more information on waivers of the 60-day rollover you from making a tax-free rollover from IRA-2 into any RetirementPlans-FAQs requirement, go to . Chapter 1 Traditional IRAs Page 23

24 Page 24 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Enter the total amount of the distribution on Form 1040, other traditional IRA. This is because in 2018 you are only line 4a; or Form 1040NR, line 17a. If the total amount on allowed to make one rollover within a 1-year period. So Form 1040, line 4a; or Form 1040NR, line 17a, was rolled when you make a rollover from IRA-1 to IRA-3, you can’t make a rollover from IRA-2 to any other traditional IRA. over, enter zero on Form 1040, line 4b; or Form 1040NR, line 17b. If the total distribution wasn’t rolled over, enter Exception. An IRA distribution made from a failed fi- the taxable portion of the part that wasn’t rolled over on nancial institution by the Federal Deposit Insurance Cor- Form 1040, line 4b; or Form 1040NR, line 17b. Enter poration as receiver is not treated as a rollover for purpo- “Rollover” next to line 4b; or line 17b, Form 1040NR. See ses of the one-rollover-per-year limitation, provided: your tax return instructions. If you rolled over the distribution into a qualified plan Neither the failed financial institution nor the depositor 1. (other than an IRA) or you make the rollover in 2019, at- initiated the distribution, and tach a statement explaining what you did. No financial institution has assumed the IRAs of the 2. For information on how to figure the taxable portion, failed financial institution. see Are Distributions Taxable? in Pub. 590-B. Application of one-rollover-per-year limitation. You Rollover From Employer's Plan can make only one rollover from an IRA to another (or the Into an IRA same) IRA in any 1-year period regardless of the number of IRAs you own. The limit will apply by aggregating all of You can roll over into a traditional IRA all or part of an eli- an individual's IRAs, including SEP and SIMPLE IRAs as gible rollover distribution you receive from your (or your well as traditional and Roth IRAs, effectively treating them deceased spouse's): as one IRA for purposes of the limit. However, trustee-to-trustee transfers between IRAs aren’t limited Employer's qualified pension, profit-sharing, or stock • and rollovers from traditional IRAs to Roth IRAs (conver- bonus plan; sions) aren’t limited. Annuity plan; • Example. John has three traditional IRAs: IRA-1, Tax-sheltered annuity plan (section 403(b) plan); or • IRA-2, and IRA-3. John didn’t take any distributions from Governmental deferred compensation plan (section • his IRAs in 2018. On January 1, 2019, John took a distri- 457 plan). bution from IRA-1 and rolled it over into IRA-2 on the same day. For 2019, John can’t roll over any other 2019 A qualified plan is one that meets the requirements of IRA distribution, including a rollover distribution involving the Internal Revenue Code. IRA-3. This wouldn’t apply to a conversion. Eligible rollover distribution. Generally, an eligible roll- The same property must be rolled over. If property is over distribution is any distribution of all or part of the bal- distributed to you from an IRA and you complete the roll- ance to your credit in a qualified retirement plan except over by contributing property to an IRA, your rollover is tax the following. free only if the property you contribute is the same prop- 1. A required minimum distribution (explained later un- erty that was distributed to you. When Must You Withdraw Assets? (Required der Partial rollovers. If you withdraw assets from a tradi- Minimum Distributions) in Pub. 590-B). tional IRA, you can roll over part of the withdrawal tax free A hardship distribution. 2. and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nonde- Any of a series of substantially equal periodic distribu- 3. ductible contributions). The amount you keep may be sub- tions paid at least once a year over: ject to the 10% additional tax on early distributions dis- a. Your lifetime or life expectancy, cussed later under What Acts Result in Penalties or . Additional Taxes b. The lifetimes or life expectancies of you and your beneficiary, or Required distributions. Amounts that must be distrib- uted during a particular year under the required distribu- A period of 10 years or more. c. tion rules (discussed in Pub. 590-B) aren’t eligible for roll- 4. Corrective distributions of excess contributions or ex- over treatment. cess deferrals, and any income allocable to the ex- cess, or of excess annual additions and any allocable If you inherit a traditional IRA from your Inherited IRAs. gains. spouse, you generally can roll it over, or you can choose to make the inherited IRA your own as discussed earlier 5. A loan treated as a distribution because it doesn’t sat- What if You Inherit an IRA under . isfy certain requirements either when made or later (such as upon default), unless the participant's ac- Report any rollover Reporting rollovers from IRAs. crued benefits are reduced (offset) to repay the loan. from one traditional IRA to the same or another traditional See the discussion earlier of plan loan offsets (includ- IRA on Form 1040, lines 4a and 4b; or Form 1040NR, ing qualified plan loan offsets) under Time Limit for lines 17a and 17b. Making a Rollover Contribution . Page 24 Chapter 1 Traditional IRAs

25 Page 25 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Dividends on employer securities. 6. You are given information that clearly states that you • have this 30-day period to make the decision. 7. The cost of life insurance coverage. Contact the plan administrator if you have any questions Your rollover into a traditional IRA may include both regarding this information. amounts that would be taxable and amounts that wouldn’t be taxable if they were distributed to you, but not rolled Generally, if an eligible roll- Withholding requirement. over. To the extent the distribution is rolled over into a tra- over distribution is paid directly to you, the payer must ditional IRA, it isn’t includible in your income. withhold 20% of it. This applies even if you plan to roll over the distribution to a traditional IRA. You can avoid Any nontaxable amounts that you roll over into withholding by choosing the direct rollover option , dis- your traditional IRA become part of your basis TIP cussed later. (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Exceptions. The payer doesn’t have to withhold from Form 8606 for the year of the distribution. See Form 8606 an eligible rollover distribution paid to you if either of the Distributions Fully or Partly Taxable under in Pub. 590-B. following conditions applies. The distribution and all previous eligible rollover distri- • Rollover by nonspouse beneficiary. If you are a desig- butions you received during your tax year from the nated beneficiary (other than a surviving spouse) of a de- same plan (or, at the payer's option, from all your em- ceased employee, you can roll over all or part of an eligi- ployer's plans) total less than $200. ble rollover distribution from one of the types of plans The distribution consists solely of employer securities, • listed above into a traditional IRA. You must make the roll- plus cash of $200 or less in lieu of fractional shares. over by a direct trustee-to-trustee transfer into an inherited IRA. The amount withheld is part of the distribution. If You will determine your required minimum distributions you roll over less than the full amount of the distri- ! in years after you make the rollover based on whether the CAUTION bution, you may have to include in your income employee died before his or her required beginning date the amount you don’t roll over. However, you can make up for taking distributions from the plan. For more informa- the amount withheld with funds from other sources. Distributions after the employee's death tion, see under in Pub. 575. Tax on Excess Accumulation Other withholding rules. The 20% withholding re- quirement doesn’t apply to distributions that aren’t eligible Written explanation to recipients. Before making an el- rollover distributions. However, other withholding rules ap- igible rollover distribution, the administrator of a qualified ply to these distributions. The rules that apply depend on retirement plan must provide you with a written explana- whether the distribution is a periodic distribution or a non- tion. It must tell you about all of the following. periodic distribution. For either of these types of distribu- tions, you can still choose not to have tax withheld. For Your right to have the distribution paid tax free directly • to a traditional IRA or another eligible retirement plan. more information, see Pub. 575. The requirement to withhold tax from the distribution if • Direct rollover option. Your employer's qualified plan it isn’t paid directly to a traditional IRA or another eligi- must give you the option to have any part of an eligible ble retirement plan. rollover distribution paid directly to a traditional IRA. The plan isn’t required to give you this option if your eligible The tax treatment of any part of the distribution that • rollover distributions are expected to total less than $200 you roll over to a traditional IRA or another eligible re- for the year. tirement plan within 60 days after you receive the dis- tribution. If you choose the direct rollover option, Withholding. no tax is withheld from any part of the designated distribu- Other qualified retirement plan rules, if they apply, in- • tion that is directly paid to the trustee of the traditional IRA. cluding those for lump-sum distributions, alternate payees, and cash or deferred arrangements. If any part is paid to you, the payer must withhold 20% of that part's taxable amount. How the plan receiving the distribution differs from the • plan making the distribution in its restrictions and tax Choosing an option. Table 1-5 may help you decide consequences. which distribution option to choose. Carefully compare the The plan administrator must provide you with this writ- effects of each option. ten explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as both of the following requirements are met. You are given at least 30 days after the notice is provi- • ded to consider whether you want to elect a direct roll- over. Chapter 1 Traditional IRAs Page 25

26 Page 26 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Table 1-5. part or all of it into one or more conduit IRAs. You can later Comparison of Payment to You Versus Di- roll over those assets into a new employer's plan. You can rect Rollover use a traditional IRA as a conduit IRA. You can roll over Result of a payment to Result of a part or all of the conduit IRA to a qualified plan, even if you Affected item you direct rollover make regular contributions to it or add funds from sources other than your employer's plan. However, if you make There is no The payer must withhold Withholding withholding. 20% of the taxable part. regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move If you are under age 1 funds won’t be eligible for any optional tax treatment for 2 , a 10% additional / 59 There is no 10% tax may apply to the which it might have otherwise qualified. additional tax. See Additional tax taxable part (including an in Early Distributions amount equal to the tax If you Property and cash received in a distribution. Pub. 590-B. withheld) that isn’t rolled receive both property and cash in an eligible rollover dis- over. tribution, you can roll over part or all of the property, part Any taxable part or all of the cash, or any combination of the two that you Any taxable part isn’t (including the taxable part choose. When to report income to you until of any amount withheld) as income later distributed to you not rolled over is income The same property (or sales proceeds) must be from the IRA. to you in the year paid. rolled over. If you receive property in an eligible rollover distribution from a qualified retirement plan, you can’t If you decide to roll over any part of a distribution, keep the property and contribute cash to a traditional IRA the direct rollover option will generally be to your TIP in place of the property. You must either roll over the prop- advantage. This is because you won’t have 20% erty or sell it and roll over the proceeds, as explained next. withholding or be subject to the 10% additional tax under that option. Sale of property received in a distribution from a qualified plan. Instead of rolling over a distribution of If you have a lump-sum distribution and don’t plan to roll property other than cash, you can sell all or part of the over any part of it, the distribution may be eligible for spe- property and roll over the amount you receive from the cial tax treatment that could lower your tax for the distribu- sale (the proceeds) into a traditional IRA. You can’t keep tion year. In that case, you may want to see Pub. 575 and the property and substitute your own funds for property Form 4972, Tax on Lump-Sum Distributions, and its in- you received. structions to determine whether your distribution qualifies Example. You receive a total distribution from your for special tax treatment and, if so, to figure your tax under employer's plan consisting of $10,000 cash and $15,000 the special methods. worth of property. You decide to keep the property. You You can then compare any advantages from using Form can roll over to a traditional IRA the $10,000 cash re- 4972 to figure your tax on the lump-sum distribution with ceived, but you can’t roll over an additional $15,000 repre- any advantages from rolling over all or part of the distribu- senting the value of the property you choose not to sell. tion. However, if you roll over any part of the lump-sum Treatment of gain or loss. If you sell the distributed distribution, you can’t use the Form 4972 special tax treat- property and roll over all the proceeds into a traditional ment for any part of the distribution. IRA, no gain or loss is recognized. The sale proceeds (in- Contributions you made to your employer's plan. cluding any increase in value) are treated as part of the You can roll over a distribution of voluntary deductible em- distribution and aren’t included in your gross income. ployee contributions (DECs) you made to your employer's plan. Prior to January 1, 1987, employees could make and Example. On September 6, Mike received a lump-sum deduct these contributions to certain qualified employers' distribution from his employer's retirement plan of $50,000 plans and government plans. These aren’t the same as an in cash and $50,000 in stock. The stock wasn’t stock of employee's elective contributions to a 401(k) plan, which his employer. On September 24, he sold the stock for aren’t deductible by the employee. $60,000. On October 6, he rolled over $110,000 in cash If you receive a distribution from your employer's quali- ($50,000 from the original distribution and $60,000 from fied plan of any part of the balance of your DECs and the the sale of stock). Mike doesn’t include the $10,000 gain earnings from them, you can roll over any part of the distri- from the sale of stock as part of his income because he bution. rolled over the entire amount into a traditional IRA. The once-a-year No waiting period between rollovers. Special rules may apply to distributions of em- Note. limit on IRA-to-IRA rollovers doesn’t apply to eligible roll- Figuring the ployer securities. For more information, see over distributions from an employer plan. You can roll over Taxable Amount Taxation of Nonperiodic Payments under more than one distribution from the same employer plan in Pub. 575. within a year. Partial rollover. If you received both cash and property, IRA as a holding account (conduit IRA) for rollovers or just property, but didn’t roll over the entire distribution, If you receive an eligible rollover to other eligible plans. see Rollovers in Pub. 575. distribution from your employer's plan, you can roll over Page 26 Chapter 1 Traditional IRAs

27 Page 27 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Receipt of property other than money. If you re- You can’t roll over a life insur- Life insurance contract. ceive property other than money, you can sell the property ance contract from a qualified plan into a traditional IRA. and roll over the proceeds as discussed earlier. If you Distributions received by a surviving spouse. receive an If you redeem re- (defined earlier) eligible rollover distribution Rollover from bond purchase plan. tirement bonds that were distributed to you under a quali- eligible retirement plan from your deceased spouse's (de- fined earlier), you can roll over part or all of it into a tradi- fied bond purchase plan, you can roll over tax free into a tional IRA. You can also roll over all or any part of a distri- traditional IRA the part of the amount you receive that is more than your basis in the retirement bonds. bution of DECs. Enter the Distributions under divorce or similar proceedings Reporting rollovers from employer plans. total distribution (before income tax or other deductions (alternate payees). If you are the spouse or former were withheld) on Form 1040, line 4a; or Form 1040NR, spouse of an employee and you receive a distribution line 17a. This amount should be shown in box 1 of Form from a qualified retirement plan as a result of divorce or similar proceedings, you may be able to roll over all or part 1099-R. From this amount, subtract any contributions of it into a traditional IRA. To qualify, the distribution must (usually shown in box 5 of Form 1099-R) that were taxable be: to you when made. From that result, subtract the amount that was rolled over either directly or within 60 days of re- eligible rollover distribu- One that would have been an • ceiving the distribution. Enter the remaining amount, even tion (defined earlier) if it had been made to the em- if zero, on Form 1040, line 4b; or Form 1040NR, line 17b. ployee, and Also, enter "Rollover" next to line 4b of Form 1040; or Made under a qualified domestic relations order. • line 17b of Form 1040NR. A domestic rela- Qualified domestic relations order. Rollover of Airline Payments tions order is a judgment, decree, or order (including ap- proval of a property settlement agreement) that is issued (defined below) and qualified airline employee If you are a under the domestic relations law of a state. A “qualified airline payment(s) you received any (defined below), you domestic relations order” gives to an alternate payee (a may be able to exclude from income a portion of any pay- spouse, former spouse, child, or dependent of a partici- ment(s) received that are rolled over to a traditional IRA. pant in a retirement plan) the right to receive all or part of The maximum amount that can be rolled over to a tradi- the benefits that would be payable to a participant under tional IRA is 90% of the total airline payment(s) received. the plan. The order requires certain specific information, must The rollover to a traditional IRA be done within 180 and it can’t alter the amount or form of the benefits of the days of receipt of the airline payment. plan. For 2018, report any airline payment(s) you received in Tax treatment if all of an eligible distribution isn’t income on Form 1040 or Form 1040NR. For example, if Any part of an eligible rollover distribution rolled over. you received a Form W-2 with airline payment amounts that you keep is taxable in the year you receive it. If you reported in box 1, the full amount should be included on don’t roll over any of it, special rules for lump-sum distribu- Form 1040, line 1; or Form 1040NR, line 8. Up to 90% of tions may apply. See under Tax- Lump-Sum Distributions all airline payment(s) received may be excluded from in- in Pub. 575. The 10% ad- ation of Nonperiodic Payments come if rolled over to a traditional IRA. To exclude these ditional tax on early distributions, discussed later under airline payment rollover amounts for 2018, you must in- , doesn’t What Acts Result in Penalties or Additional Taxes clude the amount rolled over on Schedule 1 (Form 1040), apply. line 21; or Form 1040NR, line 21, as a negative amount Keogh plans and rollovers. If you are self-employed, and write “airline payment” on the dotted line next to you are generally treated as an employee for rollover pur- line 21. poses. Consequently, if you receive an eligible rollover Example. John, a qualified airline employee, received distribution from a Keogh plan (a qualified plan with at an airline payment in the amount of $1,000 on January 14, least one self-employed participant), you can roll over all 2018. John rolled over $900 (90%) of the airline payment or part of the distribution (including a lump-sum distribu- received to a traditional IRA on March 18, 2018 (within tion) into a traditional IRA. For information on lump-sum 180 days of receipt). John received a Form W-2 for 2018 Taxation distributions, see Lump-Sum Distributions under with $1,000 reported in box 1 (amount of airline payment). of Nonperiodic Payments in Pub. 575. The $1,000 airline payment received (Form W-2, box 1) is For more information about Keogh More information. reported on Form 1040, line 1. The $900 rollover is repor- plans, see chapter 4 of Pub. 560. ted as a negative amount on Schedule 1 (Form 1040), line 21. John must also write “airline payment” on the dot- Distribution from a tax-sheltered annuity. If you re- ted line next to line 21. ceive an eligible rollover distribution from a tax-sheltered annuity plan (section 403(b) plan), you can roll it over into Amending a return. If you are excluding airline pay- a traditional IRA. ments from gross income for an earlier year, you will need to file Form 1040X, Amended U.S. Individual Income Tax Chapter 1 Traditional IRAs Page 27

28 Page 28 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. income at the time of the contributions and isn’t consid- Return, for the tax year(s) in which the airline payments were received and included in your gross income. You ered to be investment in the contract. Also, the 1-year waiting period between rollovers doesn’t apply. generally must file your amended return by the later of 3 years after the date you filed your original return or within You are a qualified taxpayer if you Qualified taxpayer. 2 years after the date you paid the tax. are: For more details on filing Form 1040X to exclude airline payments from gross income, go to . IRS.gov/Form1040X A plaintiff in the civil action In re Exxon Valdez , No. • 89-095-CV (HRH) (Consolidated) (D.Alaska); A current or former em- Qualified airline employee. The beneficiary of the estate of a plaintiff who ac- • ployee of a commercial airline carrier who was a partici- quired the right to receive qualified settlement income pant in a qualified defined benefit plan maintained by the and who is the spouse or immediate relative of that carrier which was terminated became subject to restric- plaintiff. tions under section 402(b) of the Pension Protection Act of 2006, or was frozen effective November 1, 2012. These Qualified settlement in- Qualified settlement income. provisions also apply to surviving spouses of qualified air- come is any interest and punitive damage awards which line employees but don’t apply to covered executives or to are: surviving spouses of covered executives. Otherwise includible in income; and • A current or former principal exec- Covered executives. Received in connection with the civil action In re Ex- • utive officer (PEO) or one of the three highest compensa- , No. 89-095-CV (HRH) (Consolidated) xon Valdez ted officers (other than the PEO and principal financial of- (D.Alaska) (whether pre- or post-judgment and ficer (PFO). The term “covered executives” generally whether related to a settlement or judgment). doesn’t include the PFO. Qualified settlement income can be received as periodic An airline payment is any payment of Airline payment. Miscellaneous Income payments or as a lump sum. See in money or other property that is paid to a qualified airline Pub. 525, Taxable and Nontaxable Income, for informa- employee from a commercial airline carrier. The payment tion on how to report qualified settlement income. also must be made both: Under the approval of an order of a federal bankruptcy • Transfers Incident to Divorce court in a case filed after September 11, 2001, and before January 1, 2007, or filed on November 29, If an interest in a traditional IRA is transferred from your 2011; spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such In respect of the qualified airline employee’s interest in • a decree, the interest in the IRA, starting from the date of a bankruptcy claim against the airline carrier, any note the transfer, is treated as your IRA. The transfer is tax of the carrier (or amount paid in lieu of a note being is- free. For information about transfers of interests in em- sued), or any other fixed obligation of the carrier to Distributions under divorce or similar ployer plans, see pay a lump-sum amount. proceedings (alternate payees) Rollover From Em- under Any reduction in the airline payment amount on account of ployer's Plan Into an IRA, earlier. employment taxes shall be disregarded when figuring the amount you can roll over to your traditional IRA. Also, an Transfer methods. There are two commonly used meth- airline payment shall not include any amount payable on ods of transferring IRA assets to a spouse or former the basis of the airline carrier’s future earnings or profits. spouse. The methods are: Changing the name on the IRA, and • Rollover of Exxon Valdez Making a direct transfer of IRA assets. • Settlement Income If all the assets are Changing the name on the IRA. If you are a qualified taxpayer (defined later) and you re- to be transferred, you can make the transfer by changing ceived (defined later), you qualified settlement income the name on the IRA from your name to the name of your can contribute all or part of the amount received to an eli- spouse or former spouse. gible retirement plan which includes a traditional IRA. The Direct transfer. Under this method, you direct the amount contributed can’t exceed $100,000 (reduced by trustee of the traditional IRA to transfer the affected assets the amount of qualified settlement income contributed to directly to the trustee of a new or existing traditional IRA an eligible retirement plan in prior tax years) or the amount set up in the name of your spouse or former spouse. of qualified settlement income received during the tax If your spouse or former spouse is allowed to keep his year. Contributions for the year can be made until the due or her portion of the IRA assets in your existing IRA, you date for filing your return, not including extensions. can direct the trustee to transfer the assets you are per- Qualified settlement income that you contribute to a tra- mitted to keep directly to a new or existing traditional IRA ditional IRA will be treated as having been rolled over in a set up in your name. The name on the IRA containing your direct trustee-to-trustee transfer within 60 days of the dis- spouse's or former spouse's portion of the assets would tribution. The amount contributed isn’t included in your then be changed to show his or her ownership. Page 28 Chapter 1 Traditional IRAs

29 Page 29 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. If the transfer results in a change in the basis of Recharacterizations the traditional IRA of either spouse, both spouses ! CAUTION must file Form 8606 and follow the directions in You may be able to treat a contribution made to one type the instructions for that form. of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. To recharacterize a contribution, you generally must Converting From Any Traditional IRA have the contribution transferred from the first IRA (the Into a Roth IRA one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the You can withdraw all or part of Allowable conversions. due date (including extensions) for your tax return for the the assets from a traditional IRA and reinvest them (within tax year for which the contribution was made, you can 60 days) in a Roth IRA. The amount that you withdraw and elect to treat the contribution as having been originally timely contribute (convert) to the Roth IRA is called a con- made to the second IRA instead of to the first IRA. If you version contribution. If properly (and timely) rolled over, recharacterize your contribution, you must do all three of the 10% additional tax on early distributions won’t apply. the following. However, a part or all of the distribution from your tradi- tional IRA may be included in gross income and subjected Include in the transfer any net income allocable to the • to ordinary income tax. contribution. If there was a loss, the net income you You must roll over into the Roth IRA the same property must transfer may be a negative amount. you received from the traditional IRA. You can roll over Report the recharacterization on your tax return for the • part of the withdrawal into a Roth IRA and keep the rest of year during which the contribution was made. it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) Treat the contribution as having been made to the • and may be subject to the 10% additional tax on early dis- second IRA on the date that it was actually made to tributions. See When Can You Withdraw or Use Assets , the first IRA. later, for more information on distributions from traditional No recharacterizations of conversions made in 2018 in Pub. 590-B for more infor- Early Distributions IRAs and A conversion of a traditional IRA to a Roth IRA, or later. mation on the tax on early distributions. and a rollover from any other eligible retirement plan to a If you started taking substan- Periodic distributions. Roth IRA, made in tax years beginning after December tially equal periodic payments from a traditional IRA, you 31, 2017, cannot be recharacterized as having been can convert the amounts in the traditional IRA to a Roth made to a traditional IRA. If you made a conversion in the IRA and then continue the periodic payments. The 10% 2017 tax year, you have until the due date (with exten- additional tax on early distributions won’t apply even if the sions) for filing the return for that tax year to recharacterize distributions aren’t qualified distributions (as long as they it. are part of a series of substantially equal periodic pay- ments). You can’t deduct the contribu- No deduction allowed. tion to the first IRA. Any net income you transfer with the Required distributions. You can’t convert amounts that recharacterized contribution is treated as earned in the must be distributed from your traditional IRA for a particu- second IRA. The contribution won’t be treated as having lar year (including the calendar year in which you reach been made to the second IRA to the extent any deduction 1 ) under the required distribution rules (discussed 2 / age 70 was allowed for the contribution to the first IRA. in Pub. 590-B). Conversion by rollover from traditional to Roth IRA. Income. You must include in your gross income distribu- You receive a distribution from a traditional IRA in 1 tax tions from a traditional IRA that you would have had to in- year. You then roll it over into a Roth IRA within 60 days of clude in income if you hadn’t converted them into a Roth the distribution from the traditional IRA but in the next IRA. These amounts are normally included in income on year. For recharacterization purposes, you would treat this your return for the year that you converted them from a transaction as a contribution to the Roth IRA in the year of traditional IRA to a Roth IRA. the distribution from the traditional IRA. You don’t include in gross income any part of a distribu- tion from a traditional IRA that is a return of your basis, as Effect of previous tax-free transfers. If an amount has in Pub. 590-B. Are Distributions Taxable discussed under been moved from one IRA to another in a tax-free trans- fer, such as a rollover, you generally can’t recharacterize If you must include any amount in your gross in- the amount that was transferred. However, see Traditional come, you may have to increase your withholding ! IRA mistakenly moved to SIMPLE IRA below. CAUTION or make estimated tax payments. See Pub. 505, Tax Withholding and Estimated Tax. Traditional IRA mistakenly moved to SIMPLE IRA. If you mistakenly roll over or transfer an amount from a tra- ditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Chapter 1 Traditional IRAs Page 29

30 Page 30 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Worksheet 1-3. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount to Keep for Your Records be Recharacterized 1. ... Enter the amount of your IRA contribution for 2019 to be recharacterized 1. Enter the fair market value of the IRA immediately prior to the recharacterization (include any 2. distributions, transfers, or recharacterization made while the contribution was in the ... account) 2. Enter the fair market value of the IRA immediately prior to the time the contribution being 3. recharacterized was made, including the amount of such contribution and any other contributions, transfers, or recharacterizations made while the contribution was in the account ... 3. Subtract line 3 from line 2 ... 4. 4. 5. Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places) ... 5. Multiply line 1 by line 5. This is the net income attributable to the contribution to be 6. ... 6. recharacterized 7. Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable ... to it to be recharacterized 7. same trustee. The notification(s) must include all of the You can re- Recharacterizing excess contributions. characterize only actual contributions. If you are applying following information. excess contributions for prior years as current contribu- The type and amount of the contribution to the first • tions, you can recharacterize them only if the recharacteri- IRA that is to be recharacterized. zation would still be timely with respect to the tax year for The date on which the contribution was made to the • which the applied contributions were actually made. first IRA and the year for which it was made. You contributed more than you were entitled Example. A direction to the trustee of the first IRA to transfer in a • to in 2018. You can’t recharacterize the excess contribu- trustee-to-trustee transfer the amount of the contribu- tions you made in 2018 after April 15, 2019, because con- tion and any net income (or loss) allocable to the con- tributions after that date are no longer timely for 2018. tribution to the trustee of the second IRA. Recharacterizing employer contributions. You can’t The name of the trustee of the first IRA and the name • recharacterize employer contributions (including elective of the trustee of the second IRA. deferrals) under a SEP or SIMPLE plan as contributions to Any additional information needed to make the trans- • another IRA. SEPs are discussed in chapter 2 of Pub. fer. 560. SIMPLE plans are discussed in chapter 3 of Pub. 560. In most cases, the net income you must transfer is de- termined by your IRA trustee or custodian. If you need to Recharacterization not counted as rollover. The re- determine the applicable net income on IRA contributions characterization of a contribution is not treated as a roll- made after 2018 that are recharacterized, use Worksheet over for purposes of the 1-year waiting period described 1-3 . See Regulations section 1.408A-5 for more informa- earlier in this chapter under Rollover From One IRA Into tion. Another . This is true even if the contribution would have been treated as a rollover contribution by the second IRA Timing. The election to recharacterize and the transfer if it had been made directly to the second IRA rather than must both take place on or before the due date (including as a result of a recharacterization of a contribution to the extensions) for filing your tax return for the tax year for first IRA. which the contribution was made to the first IRA. Ordinarily, you must choose to recharac- Extension. How Do You Recharacterize a Contribution? terize a contribution by the due date of the return or the due date plus extensions. However, if you miss this dead- To recharacterize a contribution, you must notify both the line, you can still recharacterize a contribution if: trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the Your return was timely filed for the year the choice • one to which the contribution is being moved) that you should have been made, and have elected to treat the contribution as having been You take appropriate corrective action within 6 months • made to the second IRA rather than the first. You must from the due date of your return excluding extensions. make the notifications by the date of the transfer. Only one For returns due April 15, 2019, this period ends on notification is required if both IRAs are maintained by the October 15, 2019. When the date for doing any act for Page 30 Chapter 1 Traditional IRAs

31 Page 31 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. tax purposes falls on a Saturday, Sunday, or legal hol- Contributions Returned iday, the due date is delayed until the next business Before Due Date of Return day. Appropriate corrective action consists of: If you made IRA contributions in 2018, you can withdraw them tax free by the due date of your return. If you have Notifying the trustee(s) of your intent to recharacterize, • an extension of time to file your return, you can withdraw Providing the trustee with all necessary information, • them tax free by the extended due date. You can do this if, and for each contribution you withdraw, both of the following conditions apply. Having the trustee transfer the contribution. • You didn’t take a deduction for the contribution. • Once this is done, you must amend your return to show the recharacterization. You have until the regular due date You withdraw any interest or other income earned on • for amending a return to do this. Report the recharacteri- the contribution. You can take into account any loss zation on the amended return and write “Filed pursuant to on the contribution while it was in the IRA when calcu- section 301.9100-2” on the return. File the amended re- lating the amount that must be withdrawn. If there was turn at the same address you filed the original return. a loss, the net income earned on the contribution may be a negative amount. The election to recharacterize can be Decedent. made on behalf of a deceased IRA owner by the executor, If you timely filed your 2018 tax return without Note. administrator, or other person responsible for filing the de- withdrawing a contribution that you made in 2018, you can cedent's final income tax return. still have the contribution returned to you within 6 months of the due date of your 2018 tax return, excluding exten- After the transfer has taken Election can’t be changed. sions. If you do, file an amended return with “Filed pur- place, you can’t change your election to recharacterize. suant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an Same trustee. Recharacterizations made with the same explanation of the withdrawal. Make any other necessary trustee can be made by redesignating the first IRA as the changes on the amended return (for example, if you re- second IRA, rather than transferring the account balance. ported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting Reporting a Recharacterization that the withdrawn contributions are no longer treated as If you elect to recharacterize a contribution to one IRA as having been contributed). a contribution to another IRA, you must report the rechar- In most cases, the net income you must withdraw is de- acterization on your tax return as directed by Form 8606 termined by the IRA trustee or custodian. If you need to and its instructions. You must treat the contribution as determine the applicable net income on IRA contributions having been made to the second IRA. made after 2018 that are returned to you, use Worksheet . See Regulations section 1.408-11 for more informa- 1-4 If you have more than one IRA, fig- More than one IRA. tion. ure the amount to be recharacterized only on the account from which you withdraw the contribution. On May 2, 2019, when her IRA is worth Example. $4,800, Cathy makes a $1,600 regular contribution to her IRA. Cathy requests that $400 of the May 2, 2019, contri- When Can You Withdraw or bution be returned to her. On February 2, 2020, when the IRA is worth $7,600, the IRA trustee distributes to Cathy Use Assets? the $400 plus net income attributable to the contribution. No other contributions have been made to the IRA for You can withdraw or use your traditional IRA assets at any 2019 and no distributions have been made. time. However, a 10% additional tax generally applies if The adjusted opening balance is $6,400 ($4,800 + 1 you withdraw or use IRA assets before you are age 59 / 2 . $1,600) and the adjusted closing balance is $7,600. The 1 This is explained under Age 59 Early Distri- under / 2 Rule net income due to the May 2, 2019, contribution is $75 butions in Pub. 590-B. ($400 x ($7,600 – $6,400) ÷ $6,400). Therefore, the total to be distributed on February 2, 2020, is $475. This is You generally can make a tax-free withdrawal of contri- . Worksheet 1-4. Example—Illustrated shown on butions if you do it before the due date for filing your tax return for the year in which you made them. This means 1 , the 10% additional 2 / that, even if you are under age 59 tax may not apply. These withdrawals are explained later. Chapter 1 Traditional IRAs Page 31

32 Page 32 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. interest or other income must be reported on Form 5329 Last-in first-out rule. If you made more than one regular and, unless the distribution qualifies as an exception to contribution for the year, your last contribution is consid- 1 rule, it will be subject to this tax. See the age 59 2 / Early ered to be the one that is returned to you first. What Acts Result in Penalties or Addi- under Distributions in Pub. 590-B. tional Taxes? Earnings Includible in Income Excess Contributions Tax You must include in income any earnings on the contribu- tions you withdraw. Include the earnings in income for the If any part of these contributions is an excess contribution year in which you made the contributions, not the year in for 2017, it is subject to a 6% excise tax. You won’t have which you withdraw them. to pay the 6% tax if any 2017 excess contribution was withdrawn by April 17, 2018 (plus extensions), and if any Generally, except for any part of a withdrawal that 2018 excess contribution is withdrawn by April 15, 2019 is a return of nondeductible contributions (basis), ! What (plus extensions). See Excess Contributions under CAUTION any withdrawal of your contributions after the due Acts Result in Penalties or Additional Taxes , later. date (or extended due date) of your return will be treated Excess contributions as a taxable distribution. can also be You may be able to treat a contribution made to What Acts Result recovered tax free as discussed under one type of IRA as having been made to a differ- TIP in Penalties or Additional Taxes , later. ent type of IRA. This is called recharacterizing the contribution. See Recharacterizations , earlier, for more in- formation. Early Distributions Tax The 10% additional tax on distributions made before you 1 2 reach age 59 doesn’t apply to these tax-free withdraw- / als of your contributions. However, the distribution of Determining the Amount of Net Income Due Worksheet 1-4. to an IRA Contribution and Total Amount to Keep for Your Records be Withdrawn From the IRA 1. ... Enter the amount of your IRA contribution for 2019 to be returned to you 1. 2. Enter the fair market value of the IRA immediately prior to the removal of the contribution, plus the amount of any distributions, transfers, and recharacterizations made while the contribution was in the IRA 2. ... Enter the fair market value of the IRA immediately before the contribution was made, plus the 3. amount of such contribution and any other contributions, transfers, and recharacterizations ... 3. made while the contribution was in the IRA ... 4. Subtract line 3 from line 2 4. Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places) ... 5. 5. Multiply line 1 by line 5. This is the net income attributable to the contribution to be 6. ... returned 6. 7. Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable 7. ... to it to be returned to you Example—Illustrated Worksheet 1-4. Keep for Your Records 1. Enter the amount of your IRA contribution for 2019 to be returned to you ... 400 1. 2. Enter the fair market value of the IRA immediately prior to the removal of the contribution, plus the amount of any distributions, transfers, and recharacterizations made while the 7,600 contribution was in the IRA 2. ... 3. Enter the fair market value of the IRA immediately before the contribution was made, plus the amount of such contribution and any other contributions, transfers, and recharacterizations 6,400 3. made while the contribution was in the IRA ... 4. Subtract line 3 from line 2 ... 1,200 4. 5. Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places) ... 0.1875 5. Multiply line 1 by line 5. This is the net income attributable to the contribution to be 6. 75 returned ... 6. 7. Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable 475 to it to be returned to you ... 7. Page 32 Chapter 1 Traditional IRAs

33 Page 33 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Generally, if you or your ben- Effect on an IRA account. eficiary engages in a prohibited transaction in connection What Acts Result in Penalties with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of or Additional Taxes? that year. The tax advantages of using traditional IRAs for retirement Effect on you or your beneficiary. If your account savings can be offset by additional taxes and penalties if stops being an IRA because you or your beneficiary en- you don’t follow the rules. There are additions to the regu- gaged in a prohibited transaction, the account is treated lar tax for using your IRA funds in prohibited transactions. as distributing all its assets to you at their fair market val- There are also additional taxes for the following activities. ues on the first day of the year. If the total of those values is more than your basis in the IRA, you will have a taxable Investing in collectibles. • gain that is includible in your income. For information on Making excess contributions. • Are Dis- figuring your gain and reporting it in income, see Taking early distributions. See Pub. 590-B. • in Pub. 590-B. The distribution may be tributions Taxable subject to additional taxes or penalties. Allowing excess amounts to accumulate (failing to • take required distributions). See Pub. 590-B. If you borrow Borrowing on an annuity contract. money against your traditional IRA annuity contract, you Having unrelated business income. • must include in your gross income the fair market value of the annuity contract as of the first day of your tax year. There are penalties for overstating the amount of non- You may have to pay the 10% additional tax on early dis- deductible contributions and for failure to file Form 8606, if tributions discussed in Pub. 590-B. required. If you use a part of Pledging an account as security. This chapter discusses those acts that you should your traditional IRA account as security for a loan, that avoid and the additional taxes and other costs, including part is treated as a distribution and is included in your loss of IRA status, that apply if you don’t avoid those acts. gross income. You may have to pay the 10% additional tax on early distributions discussed in Pub. 590-B. Prohibited Transactions Trust account set up by an employer or an employee Generally, a prohibited transaction is any improper use of association. Your account or annuity doesn’t lose its IRA your traditional IRA account or annuity by you, your bene- treatment if your employer or the employee association ficiary, or any disqualified person. with whom you have your traditional IRA engages in a pro- hibited transaction. Disqualified persons include your fiduciary and mem- Owner participation. If you participate in the prohibi- bers of your family (spouse, ancestor, lineal descendant, ted transaction with your employer or the association, and any spouse of a lineal descendant). your account is no longer treated as an IRA. The following are some examples of prohibited trans- actions with a traditional IRA. Taxes on prohibited transactions. If someone other than the owner or beneficiary of a traditional IRA engages Borrowing money from it. • in a prohibited transaction, that person may be liable for Selling property to it. • certain taxes. In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if Using it as security for a loan. • the transaction isn’t corrected. Buying property for personal use (present or future) • Loss of IRA status. If the traditional IRA ceases to be with IRA funds. an IRA because of a prohibited transaction by you or your If your IRA is invested in nonpublicly traded as- beneficiary, you or your beneficiary aren’t liable for these sets or assets that you directly control, the risk of ! excise taxes. However, you or your beneficiary may have CAUTION engaging in a prohibited transaction in connection Effect on you or to pay other taxes as discussed under with your account may be increased. your beneficiary , earlier. Fiduciary. For these purposes, a fiduciary includes any- Exempt Transactions one who does any of the following. The following two types of transactions aren’t prohibited Exercises any discretionary authority or discretionary • transactions if they meet the requirements that follow. control in managing your IRA or exercises any author- ity or control in managing or disposing of its assets. Payments of cash, property, or other consideration by • the sponsor of your traditional IRA to you (or members Provides investment advice to your IRA for a fee, or • of your family). has any authority or responsibility to do so. Has any discretionary authority or discretionary re- • sponsibility in administering your IRA. Chapter 1 Traditional IRAs Page 33

34 Page 34 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. These include: Your receipt of services at reduced or no cost from the Collectibles. • bank where your traditional IRA is established or Artworks, • maintained. Rugs, • Payments of cash, property, or other consideration. Antiques, • Even if a sponsor makes payments to you or your family, Metals, • there is no prohibited transaction if all three of the follow- ing requirements are met. Gems, • 1. The payments are for establishing a traditional IRA or Stamps, • for making additional contributions to it. Coins, • The IRA is established solely to benefit you, your 2. Alcoholic beverages, and • spouse, and your or your spouse's beneficiaries. Certain other tangible personal property. • During the year, the total fair market value of the pay- 3. ments you receive isn’t more than: Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or $10 for IRA deposits of less than $5,000, or a. one-ounce silver coins minted by the Treasury Depart- $20 for IRA deposits of $5,000 or more. b. ment. It can also invest in certain platinum coins and cer- tain gold, silver, palladium, and platinum bullion. If the consideration is group term life insurance, require- ments (1) and (3) don’t apply if no more than $5,000 of the Unrelated Business Income face value of the insurance is based on a dollar-for-dollar basis on the assets in your IRA. An IRA is subject to tax on unrelated business income if it carries on an unrelated trade or business. An unrelated Even if a Services received at reduced or no cost. trade or business means any trade or business regularly sponsor provides services at reduced or no cost, there is carried on by the IRA or by a partnership of which it is a no prohibited transaction if all of the following require- member. If the IRA has $1,000 or more of unrelated trade ments are met. or business gross income, the IRA trustee is required to The traditional IRA qualifying you to receive the serv- • file a Form 990-T, Exempt Organization Business Income ices is established and maintained for the benefit of Tax Return. The Form 990-T must be filed by the 15th day you, your spouse, and your or your spouse's benefi- of the 4th month after the end of the IRA’s tax year. See ciaries. Pub. 598, Tax on Unrelated Business Income of Exempt The bank itself can legally offer the services. • Organizations, for more information. The services are provided in the ordinary course of • Excess Contributions business by the bank (or a bank affiliate) to customers who qualify but don’t maintain an IRA (or a Keogh Generally, an excess contribution is the amount contrib- plan). uted to your traditional IRAs for the year that is more than The determination, for a traditional IRA, of who quali- • the smaller of: fies for these services is based on an IRA (or a Keogh $5,500 ($6,500 if you are age 50 or older), or • plan) deposit balance equal to the lowest qualifying balance for any other type of account. Your taxable compensation for the year. • The rate of return on a traditional IRA investment that • The taxable compensation limit applies whether your qualifies isn’t less than the return on an identical in- contributions are deductible or nondeductible. vestment that could have been made at the same time 1 at the same branch of the bank by a customer who and any 2 / Contributions for the year you reach age 70 isn’t eligible for (or doesn’t receive) these services. later year are also excess contributions. An excess contribution could be the result of your con- Investment in Collectibles tribution, your spouse's contribution, your employer's con- tribution, or an improper rollover contribution. If your em- If your traditional IRA invests in collectibles, the amount in- ployer makes contributions on your behalf to a SEP IRA, vested is considered distributed to you in the year inves- see chapter 2 of Pub. 560. ted. You may have to pay the 10% additional tax on early distributions discussed in Pub. 590-B. Tax on Excess Contributions Any amounts that were considered to be distributed In general, if the excess contributions for a year aren’t when the investment in the collectible was made, and withdrawn by the date your return for the year is due (in- which were included in your income at that time, aren’t in- cluding extensions), you are subject to a 6% tax. You cluded in your income when the collectible is actually dis- must pay the 6% tax each year on excess amounts that tributed from your IRA. remain in your traditional IRA at the end of your tax year. Page 34 Chapter 1 Traditional IRAs

35 Page 35 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. The tax can’t be more than 6% of the combined value of that the withdrawn contributions are no longer treated as all your IRAs as of the end of your tax year. having been contributed). You How to treat withdrawn interest or other income. The additional tax is figured on Form 5329. For infor- must include in your gross income the interest or other in- Reporting Additional mation on filing Form 5329, see come that was earned on the excess contribution. Report Taxes , later. it on your return for the year in which the excess contribu- For 2018, Paul Jones is 45 years old and Example. tion was made. Your withdrawal of interest or other in- single, his compensation is $31,000, and he contributed come may be subject to an additional 10% tax on early $6,000 to his traditional IRA. Paul has made an excess distributions discussed in Pub. 590-B. contribution to his IRA of $500 ($6,000 minus the $5,500 You will receive Form 1099-R indicating Form 1099-R. limit). The contribution earned $5 interest in 2018 and $6 the amount of the withdrawal. If the excess contribution interest in 2018 before the due date of the return, includ- was made in a previous tax year, the form will indicate the ing extensions. He doesn’t withdraw the $500 or the inter- year in which the earnings are taxable. est it earned by the due date of his return, including exten- sions. Example. Maria, age 35, made an excess contribution Paul figures his additional tax for 2018 by multiplying in 2018 of $1,000, which she withdrew by April 15, 2019, the excess contribution ($500) shown on Form 5329, the due date of her return. At the same time, she also line 16, by 0.06, giving him an additional tax liability of withdrew the $50 income that was earned on the $1,000. $30. He enters the tax on Form 5329, line 17, and on She must include the $50 in her gross income for 2018 filled-in Form Schedule 4 (Form 1040), line 59. See Paul's (the year in which the excess contribution was made). She , later. 5329 must also pay an additional tax of $5 (the 10% additional 1 tax on early distributions because she isn’t yet 59 years / 2 Excess Contributions Withdrawn old), but she doesn’t have to report the excess contribu- by Due Date of Return tion as income or pay the 6% excise tax. Maria receives a Form 1099-R showing that the earnings are taxable for You won’t have to pay the 6% tax if you withdraw an ex- 2018. cess contribution made during a tax year and you also withdraw any interest or other income earned on the ex- Excess Contributions Withdrawn cess contribution. You must complete your withdrawal by After Due Date of Return the date your tax return for that year is due, including ex- tensions. In general, you must include all distributions (withdrawals) from your traditional IRA in your gross income. However, if How to treat withdrawn contributions. Don’t include in the following conditions are met, you can withdraw excess your gross income an excess contribution that you with- contributions from your IRA and not include the amount draw from your traditional IRA before your tax return is withdrawn in your gross income. due if both of the following conditions are met. Total contributions (other than rollover contributions) • No deduction was allowed for the excess contribution. • for 2018 to your IRA weren’t more than $5,500 You withdraw the interest or other income earned on • ($6,500 if you are age 50 or older). the excess contribution. You didn’t take a deduction for the excess contribution • You can take into account any loss on the contribution being withdrawn. while it was in the IRA when calculating the amount that The withdrawal can take place at any time, even after the must be withdrawn. If there was a loss, the net income due date, including extensions, for filing your tax return for you must withdraw may be a negative amount. the year. In most cases, the net income you must transfer will be determined by your IRA trustee or custodian. If you need If Excess contribution deducted in an earlier year. to determine the applicable net income you need to with- you deducted an excess contribution in an earlier year for draw, you can use the same method that was used in which the total contributions weren’t more than the maxi- Worksheet 1-3 . mum deductible amount for that year (see the following ta- ble), you can still remove the excess from your traditional If you timely filed your 2018 tax return without withdraw- IRA and not include it in your gross income. To do this, file ing a contribution that you made in 2018, you can still Form 1040X for that year and don’t deduct the excess have the contribution returned to you within 6 months of contribution on the amended return. Generally, you can the due date of your 2018 tax return, excluding exten- file an amended return within 3 years after you filed your sions. If you do, file an amended return with “Filed pur- return, or 2 years from the time the tax was paid, which- suant to section 301.9100-2” written at the top. Report any ever is later. related earnings on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you re- ported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting Chapter 1 Traditional IRAs Page 35

36 Page 36 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Worksheet 1-5. Excess Contributions Deductible This Contribution limit Year(s) Contribution limit Year if age 50 or older at the end of the Use this worksheet to figure the amount of excess year contributions from prior years you can deduct this year. 2013 through 2018 $6,500 $5,500 1. Maximum IRA deduction for the current $5,000 $6,000 2008 through 2012 1. ... year 2006 or 2007 $5,000 $4,000 2. IRA contributions for the current $4,000 $4,500 2005 2. ... year $3,500 $3,000 2002 through 2004 3. Subtract line 2 from line 1. If zero or less, $2,000 1997 through 2001 — enter -0- 3. ... before 1997 $2,250 — Excess contributions in IRA at beginning of 4. year 4. ... Excess due to incorrect rollover information. If an ex- Enter the lesser of line 3 or line 4. This is 5. cess contribution in your traditional IRA is the result of a the amount of excess contributions for rollover and the excess occurred because the information previous years that you can deduct this the plan was required to give you was incorrect, you can 5. year ... withdraw the excess contribution. The limits mentioned above are increased by the amount of the excess that is Example. Teri was entitled to contribute to her tradi- due to the incorrect information. You will have to amend tional IRA and deduct $1,000 in 2017 and $1,500 in 2018 your return for the year in which the excess occurred to (the amounts of her taxable compensation for these correct the reporting of the rollover amounts in that year. years). For 2017, she actually contributed $1,400 but Don’t include in your gross income the part of the excess could deduct only $1,000. In 2017, $400 is an excess con- contribution caused by the incorrect information. tribution subject to the 6% tax. However, she wouldn’t have to pay the 6% tax if she withdrew the excess (includ- Deducting an Excess Contribution ing any earnings) before the due date of her 2017 return. in a Later Year Because Teri didn’t withdraw the excess, she owes excise tax of $24 for 2017. To avoid the excise tax for 2018, she You can’t apply an excess contribution to an earlier year can correct the $400 excess amount from 2017 in 2018 if even if you contributed less than the maximum amount al- her actual contributions are only $1,100 for 2018 (the al- lowable for the earlier year. However, you may be able to lowable deductible contribution of $1,500 minus the $400 apply it to a later year if the contributions for that later year excess from 2017 she wants to treat as a deductible con- are less than the maximum allowed for that year. tribution in 2018). Teri can deduct $1,500 in 2018 (the You can deduct excess contributions for previous years $1,100 actually contributed plus the $400 excess contri- that are still in your traditional IRA. The amount you can bution from 2017). This is shown on Worksheet 1-5. Ex- deduct this year is the lesser of the following two amounts. . ample—Illustrated Your maximum IRA deduction for this year minus any • amounts contributed to your traditional IRAs for this Example—Illustrated Worksheet 1-5. year. Use this worksheet to figure the amount of excess The total excess contributions in your IRAs at the be- • contributions from prior years you can deduct this year. ginning of this year. Maximum IRA deduction for the current 1. This method lets you avoid making a withdrawal. It 1,500 year ... 1. doesn’t, however, let you avoid the 6% tax on any excess contributions remaining at the end of a tax year. 2. IRA contributions for the current 1,100 year ... 2. To figure the amount of excess contributions for previ- 3. Subtract line 2 from line 1. If zero or less, ous years that you can deduct this year, see Worksheet 400 enter -0- ... 3. . 1-5 Excess contributions in IRA at beginning of 4. 400 ... 4. year 5. Enter the lesser of line 3 or line 4. This is the amount of excess contributions for previous years that you can deduct this 400 ... 5. year Page 36 Chapter 1 Traditional IRAs

37 Page 37 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. OMB No. 1545-0074 Additional Taxes on Qualified Plans 5329 Form (Including IRAs) and Other Tax-Favored Accounts 18 20 Attach to Form 1040 or Form 1040NR. Department of the Treasury Attachment Internal Revenue Service (99) Sequence No. 29 for instructions and the latest information. Go to www.irs.gov/Form5329 Name of individual subject to additional tax. If married ling jointly, see instructions. Your social security number Paul Jones 003-00-0000 Home address (number and street), or P.O. box if mail is not delivered to your home Apt. no. Fill in Your Address Only City, town or post ofce, state, and ZIP code. If you have a foreign address, also complete if You Are Filing This the spaces below. See instructions. If this is an amended Form by Itself and Not return, check here With Your Tax Return Foreign country name Foreign province/state/county Foreign postal code only 10% tax on early distributions, you may be able to report this tax directly on Schedule 4 (Form 1040), If you 59, line the additional owe or Form 1040NR, line 57, without ling Form 5329. See the instructions for Schedule 4 (Form 1040), line 59, or for Form 1040NR , line 57. Part I Complete this part if you took a taxable distribution (other than a qualied Additional Tax on Early Distributions. from a qualied retirement plan (including an IRA) or modied endowment disaster distribution) before you reached age 59½ contract (unless you are reporting this tax directly on Form 1040 or Form 1040NR—see above). You may also have to th complete this part to indicate that you qualify for an exception to the additional tax on early distributions or for certain Ro IRA distributions. See instructions. . 1 . ... Early distributions included in income. For Roth IRA distributions, see instructions . 1 2 Early distributions included on line 1 that are not subject to the additional tax (see instructions). Enter the appropriate exception number from the instructions: . . . ... 2 . . . . . . . . . 3 3 Amount subject to additional tax. Subtract line 2 from line 1 ... 4 Enter 10% (0.10) of line 3. Include this amount on Schedule 4 (Form 1040), line 59, or Form 4 Additional tax. 1040NR, line 57 of the amount on line 3 was a distribution from a SIMPLE IRA, you may have Caution: If any part to include 25% of that amount on line 4 instead of 10%. See instructions. Part II Complete this part if Additional Tax on Certain Distributions From Education Accounts and ABLE Accounts. you included an amount in income, on Schedule 1 (Form 1040), line 21, or Form 1040NR, line 21, from a Coverdell education savings account (ESA), a qualied tuition program (QTP), or an ABLE account. 5 . ... . Distributions included in income from a Coverdell ESA, a QTP, or an ABLE account 5 . 6 Distributions included on line 5 that are not subject to the additional tax (see instructions) . 6 . . . . . . . . . . 7 7 Amount subject to additional tax. Subtract line 6 from line 5 ... Enter 10% (0.10) of line 7. Include this amount on Schedule 4 (Form 1040), line 59, or Form 1040NR, line 57 8 Additional tax. 8 Part III Additional Tax on Excess Contributions to Traditional IRAs. Complete this part if you contributed more to your traditional IRAs for 2018 than is allowable or you had an amount on line 17 of your 2017 Form 5329. 9 Enter your excess contributions from line 16 of your 2017 Form 5329. See instructions. If zero, go to line 15 9 your traditional IRA contributions for 2018 are less than 10 If your maximum allowable contribution, see instructions. Otherwise, enter -0- 10 11 11 . 2018 traditional IRA distributions included in income (see instructions) 12 . 12 2018 distributions of prior year excess contributions (see instructions) . . ... . . . . . ... ... ... ... 13 13 Add lines 10, 11, and 12 ... Prior year excess contributions. Subtract line 13 from line 9. If zero or less, enter -0- 14 14 . . . Excess contributions for 2018 (see instructions) ... . . . . . . . 15 . . 15 . 500 . . . . . . . . . . . 16 ... Total excess contributions. Add lines 14 and 15 16 . . 500 6% (0.06) of the smaller of line 16 or 17 value of your traditional the (including Additional tax. Enter IRAs on December 31, 2018 2018 contributions made in 2019). Include this amount on Schedule 4 (Form 1040), line 59, or Form 1040NR, line 57 ... 30 17 Part IV Additional Tax on Excess Contributions to Roth IRAs. Complete this part if you contributed more to your Roth IRAs for 2018 than is allowable or you had an amount on line 25 of your 2017 Form 5329. 18 Enter your excess contributions from line 24 of your 2017 Form 5329. See instructions. If zero, go to line 23 18 for 2018 are less than your maximum If your Roth IRA 19 contributions . allowable contribution, see instructions. Otherwise, enter -0- . . . 19 20 20 . . . . 2018 distributions from your Roth IRAs (see instructions) . ... . . . ... ... . . . . . . ... 21 21 Add lines 19 and 20 . . . 22 ... Prior year excess contributions. Subtract line 21 from line 18. If zero or less, enter -0- 22 Excess contributions for 2018 (see instructions) . . . . . . . 23 23 . . . ... . . . . . . . . . . . 24 . . ... Total excess contributions. Add lines 22 and 23 24 . 6% (0.06) of the smaller of line 24 or the value of your Roth IRAs on December 31, 2018 (including Additional tax. Enter 25 . 2018 contributions made in 2019). Include this amount on Schedule 4 (Form 1040), line 59, or Form 1040NR, line 57 . 25 (2018) 5329 Form For Privacy Act and Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 13329Q Chapter 1 Traditional IRAs Page 37

38 Page 38 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Closed tax year. Write your social security number and “2018 Form 5329” A special rule applies if you incorrectly deducted part of the excess contribution in a closed tax on your check or money order. year (one for which the period to assess a tax deficiency Form 5329 not required. You don’t have to use Form has expired). The amount allowable as a traditional IRA 5329 if either of the following situations exists. deduction for a later correction year (the year you contrib- Distribution code 1 (early distribution) is correctly • ute less than the allowable amount) must be reduced by shown in box 7 of Form 1099-R. If you don’t owe any the amount of the excess contribution deducted in the other additional tax on a distribution, multiply the taxa- closed year. ble part of the early distribution by 10% and enter the To figure the amount of excess contributions for previ- result on Schedule 4 (Form 1040), line 59; or on Form ous years that you can deduct this year if you incorrectly 1040NR, line 57. Enter “No” to the left of the line to in- deducted part of the excess contribution in a closed tax dicate that you don’t have to file Form 5329. However, year, see . Worksheet 1-6 if you owe this tax and also owe any other additional tax on a distribution, don’t enter this 10% additional Worksheet 1-6. Excess Contributions Deductible This tax directly on your Form 1040 or Form 1040NR. You Year if Any Were Deducted in a must file Form 5329 to report your additional taxes. Closed Tax Year If you rolled over part or all of a distribution from a • Use this worksheet to figure the amount of excess qualified retirement plan, the part rolled over isn’t sub- contributions for prior years that you can deduct this year ject to the tax on early distributions. if you incorrectly deducted excess contributions in a closed tax year. 1. Maximum IRA deduction for the current year ... 1. 2. IRA contributions for the current 2. year ... 2. 3. If line 2 is less than line 1, enter any excess contributions that were deducted in a Roth IRAs closed tax year. Otherwise, enter -0- ... 3. 4. Subtract line 3 from line 1 ... 4. Reminders 5. Subtract line 2 from line 4. If zero or less, enter -0- 5. ... Deemed IRAs. For plan years beginning after 2002, a Excess contributions in IRA at beginning of 6. qualified employer plan (retirement plan) can maintain a 6. year ... separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the Enter the lesser of line 5 or line 6. This is 7. separate account or annuity otherwise meets the require- the amount of excess contributions for ments of an IRA, it will be subject only to IRA rules. An previous years that you can deduct this employee's account can be treated as a traditional IRA or year ... 7. a Roth IRA. For this purpose, a “qualified employer plan” includes: Reporting Additional Taxes A qualified pension, profit-sharing, or stock bonus • plan (section 401(a) plan); Generally, you must use Form 5329 to report the tax on excess contributions, early distributions, and excess ac- A qualified employee annuity plan (section 403(a) • cumulations. plan); A tax-sheltered annuity plan (section 403(b) plan); and • Filing a tax return. If you must file an individual income tax return, complete Form 5329 and attach it to your Form A deferred compensation plan (section 457 plan) • 1040 or Form 1040NR. Enter the total additional taxes maintained by a state, a political subdivision of a state, due on Schedule 4 (Form 1040), line 59; or on Form or an agency or instrumentality of a state or political 1040NR, line 57. subdivision of a state. Designated Roth accounts. Designated Roth accounts Not filing a tax return. If you don’t have to file a return, are separate accounts under 401(k), 403(b), or 457(b) but do have to pay one of the additional taxes mentioned plans that accept elective deferrals that are referred to as earlier, file the completed Form 5329 with the IRS at the Roth contributions. These elective deferrals are included time and place you would have filed Form 1040 or Form in your income, but qualified distributions from these ac- 1040NR. Be sure to include your address on page 1 and counts aren’t included in your income. Designated Roth your signature and date on page 2. Enclose, but don’t at- accounts aren’t IRAs and shouldn’t be confused with Roth tach, a check or money order payable to “United States IRAs. Contributions, up to their respective limits, can be Treasury” for the tax you owe, as shown on Form 5329. Page 38 Chapter 2 Roth IRAs

39 Page 39 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. made to Roth IRAs and designated Roth accounts ac- $135,000 for single, head of household, or married fil- • ing separately and you didn’t live with your spouse at cording to your eligibility to participate. A contribution to one doesn’t impact your eligibility to contribute to the any time during the year; and other. See Pub. 575 for more information on designated $10,000 for married filing separately and you lived • Roth accounts. with your spouse at any time during the year. You may be able to claim a credit for contributions to your Roth IRA. For more information, see chap- Introduction TIP . ter 3 Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retire- Is there an age limit for contributions? Contributions ment plan called a Roth IRA. can be made to your Roth IRA regardless of your age. You don’t report Roth IRA Contributions not reported. Can you contribute to a Roth IRA for your spouse? contributions on your return. You can contribute to a Roth IRA for your spouse provi- Kay Bailey Hutchison ded the contributions satisfy the discussed in chapter 1 under Spousal IRA limit How Much What Is a Roth IRA? , you file jointly, and your modified AGI Can Be Contributed is less than $199,000. A Roth IRA is an individual retirement plan that, except as Compensation includes wages, salaries, Compensation. explained in this chapter, is subject to the rules that apply tips, professional fees, bonuses, and other amounts re- (defined next). It can be either an ac- traditional IRA to a ceived for providing personal services. It also includes count or an annuity. and Individual retirement accounts commissions, self-employment income, nontaxable com- annuities are described in chapter 1 under How Can a bat pay, military differential pay, and taxable alimony and Traditional IRA Be Opened . separate maintenance payments. For more information, To be a Roth IRA, the account or annuity must be des- Who Can Open a Tradi- under What Is Compensation see ignated as a Roth IRA when it is opened. A deemed IRA in chapter 1. tional IRA? can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Modified AGI. Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your re- Unlike a traditional IRA, you can’t deduct contributions turn with some adjustments. Use Worksheet 2-1 to deter- to a Roth IRA. But, if you satisfy the requirements, quali- mine your modified AGI. fied distributions (discussed in chapter 2 of Pub. 590-B) Don’t subtract conversion income when figuring are tax free. Contributions can be made to your Roth IRA 1 your other AGI-based phaseouts and taxable in- after you reach age 70 / 2 and you can leave amounts in ! CAUTION come, such as your deduction for medical and your Roth IRA as long as you live. dental expenses. Subtract them from AGI only for the pur- Traditional IRA. A traditional IRA is any IRA that isn’t a pose of figuring your modified AGI for Roth IRA purposes. Roth IRA or SIMPLE IRA. Traditional IRAs are discussed . chapter 1 in How Much Can Be Contributed? The contribution limit for Roth IRAs generally depends on When Can a Roth IRA Be whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. Opened? If contributions are made only to Roth Roth IRAs only. You can open a Roth IRA at any time. However, the time IRAs, your contribution limit generally is the lesser of: When for making contributions for any year is limited. See $5,500 ($6,500 if you are age 50 or older), or • Can You Make Contributions , later, under Can You Con- . tribute to a Roth IRA Your taxable compensation. • However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as ex- Can You Contribute to plained later under . Contribution limit reduced a Roth IRA? Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established Generally, you can contribute to a Roth IRA if you have for your benefit, your contribution limit for Roth IRAs gen- taxable (defined later) and your compensation modified erally is the same as your limit would be if contributions (defined later) is less than: AGI were made only to Roth IRAs, but then reduced by all con- tributions for the year to all IRAs other than Roth IRAs. $199,000 for married filing jointly or qualifying • widow(er); Chapter 2 Roth IRAs Page 39

40 Page 40 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Modified Adjusted Gross Income for Roth IRA Purposes Worksheet 2-1. Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. 1. Enter your adjusted gross income from Form 1040, line 7; or Form ... 1. 1040NR, line 35 2. Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 4b; or Form 1040NR, line 17b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 4b; or Form 1040NR, line 17b) 2. ... ... 3. Subtract line 2 from line 1 3. Enter any traditional IRA deduction from Schedule 1 (Form 1040), 4. ... 4. line 32; or Form 1040NR, line 32 Enter any student loan interest deduction from Schedule 1 (Form 1040), 5. line 33; For Form 1040NR, line 33 ... 5. 6. Enter any domestic production activities deduction (DPAD) from 6. Schedule 1 (Form 1040), line 36, or Form 1040NR, line 34 ... Enter any foreign earned income exclusion and/or housing exclusion 7. from Form 2555, line 45, or Form 2555-EZ, line 18 ... 7. 8. Enter any foreign housing deduction from Form 2555, line 50 ... 8. 9. Enter any excludable qualified savings bond interest from Form 8815, ... line 14 9. 10. Enter any excluded employer-provided adoption benefits from Form 8839, line 28 ... 10. Add the amounts on lines 3 through 10 11. ... 11. 12. Enter: $199,000 if married filing jointly or qualifying widow(er), • $10,000 if married filing separately and you lived with your spouse at • any time during the year, or $135,000 for all others ... ... 12. • Is the amount on line 11 more than the amount on line 12? Note below. If yes, see the If no, the amount on line 11 is your modified adjusted gross income for Roth IRA purposes. Note. If the amount on line 11 is more than the amount on line 12 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. If you don’t have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 11 above. Page 40 Chapter 2 Roth IRAs

41 Page 41 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Employer contributions under a SEP or SIMPLE IRA plan IRA by the amount of the repayment. For more informa- How Much under Qualified reservist repayments tion, see don’t affect this limit. in chapter 1. This means that your contribution limit is the lesser of: Can Be Contributed? $5,500 ($6,500 if you are age 50 or older) minus all • If your modified AGI is Contribution limit reduced. contributions (other than employer contributions under above a certain amount, your contribution limit is gradually a SEP or SIMPLE IRA plan) for the year to all IRAs to determine if this reduction ap- reduced. Use Table 2-1 other than Roth IRAs, or plies to you. Your taxable compensation minus all contributions • If the amount you can con- Figuring the reduction. (other than employer contributions under a SEP or to figure your tribute must be reduced, use Worksheet 2-2 SIMPLE IRA plan) for the year to all IRAs other than reduced contribution limit. Roth IRAs. Round your reduced contribution limit up to the However, if your modified AGI is above a certain nearest $10. If your reduced contribution limit is TIP amount, your contribution limit may be reduced, as ex- more than $0, but less than $200, increase the . Contribution limit reduced plained later under limit to $200. Simplified employee pensions (SEPs) and savings in- centive match plans for employees (SIMPLEs) are dis- Example. You are a 45-year-old, single individual with cussed in Pub. 560. taxable compensation of $121,000. You want to make the You can repay Repayment of reservist distributions. maximum allowable contribution to your Roth IRA for qualified reservist distributions even if the repayments 2018. Your modified AGI for 2018 is $121,000. You would cause your total contributions to the Roth IRA to be haven’t contributed to any traditional IRA, so the maxi- more than the general limit on contributions. However, the mum contribution limit before the modified AGI reduction total repayments can’t be more than the amount of your is $5,500. You figure your reduced Roth IRA contribution distribution. of $5,140 as shown on Worksheet 2-2. Example—Illustra- ted . Note. If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth Chapter 2 Roth IRAs Page 41

42 Page 42 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Table 2-1. Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI). IF you have taxable compensation THEN ... AND your modified AGI is ... and your filing status is ... you can contribute up to $5,500 ($6,500 if you are age less than $189,000 50 or older) as explained under How Much Can Be Contributed , earlier. or married filing jointly the amount you can contribute qualifying widow(er) at least $189,000 is reduced as explained under Contribution limit reduced , but less than $199,000 earlier. you can’t contribute to a Roth $199,000 or more IRA. you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under zero (-0-) How Much Can Be , earlier. Contributed married filing separately (and you lived with your spouse the amount you can contribute is reduced as explained under at anytime during the year) more than zero (-0-) , but less than $10,000 Contribution limit reduced earlier. you can’t contribute to a Roth $10,000 or more IRA. you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under less than $120,000 How Much Can Be head of household, or single, Contributed , earlier. married filing separately the amount you can contribute (and you didn’t live with your is reduced as explained under at least $120,000 spouse at any time during the but less than $135,000 Contribution limit reduced , year) earlier. you can’t contribute to a Roth $135,000 or more IRA. Page 42 Chapter 2 Roth IRAs

43 Page 43 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Determining Your Reduced Roth IRA Contribution Limit Worksheet 2-2. Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it Before using this worksheet, check is, use this worksheet to determine how much it is reduced. 1. Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, ... 1. line 11) 2. Enter: $189,000 if filing a joint return or qualifying widow(er), • $-0- if married filing a separate return and you lived with your spouse • at any time in 2018, or ... $120,000 for all others ... 2. • 3. Subtract line 2 from line 1 ... 3. 4. Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a • separate return and you lived with your spouse at any time during the year, or $15,000 for all others ... ... 4. • Divide line 3 by line 4 and enter the result as a decimal (rounded to at 5. ... 5. least three places). If the result is 1.000 or more, enter 1.000 6. Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or • Your taxable compensation ... ... 6. • Multiply line 5 by line 6 ... 7. 7. Subtract line 7 from line 6. Round the result up to the nearest $10. If the 8. result is less than $200, enter $200 ... 8. 9. Enter contributions for the year to other IRAs ... 9. Subtract line 9 from line 6 ... 10. 10. 11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit ... 11. over from a Roth IRA converted from a tra- or properly When Can You Make Contributions? or ditional IRA rolled over from a qualified retirement plan , as described later) that are more than your con- You can make contributions to a Roth IRA for a year at tribution limit for the year (explained earlier under any time during the year or by the due date of your return ); plus How Much Can Be Contributed for that year (not including extensions). Any excess contributions for the preceding year, re- 2. You can make contributions for 2018 by the due duced by the total of: date (not including extensions) for filing your 2018 TIP tax return. This means that most people can make a. Any distributions out of your Roth IRAs for the contributions for 2018 by April 15, 2019. year, plus b. Your contribution limit for the year minus your con- What if You Contribute Too Much? tributions to all your IRAs for the year. For purposes Withdrawal of excess contributions. A 6% excise tax applies to any excess contribution to a of determining excess contributions, any contribution that Roth IRA. is withdrawn on or before the due date (including exten- sions) for filing your tax return for the year is treated as an Excess contributions. These are the contributions to amount not contributed. This treatment only applies if any your Roth IRAs for a year that equal the total of: earnings on the contributions are also withdrawn. The 1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled Chapter 2 Roth IRAs Page 43

44 Page 44 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Example—Illustrated Worksheet 2-2. to determine whether or not your Roth IRA contribution limit is reduced. If it Table 2-1 Before using this worksheet, check is, use this worksheet to determine how much it is reduced. ... 1. 121,000 Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 11) 1. 2. Enter: $189,000 if filing a joint return or qualifying widow(er), • $-0- if married filing a separate return and you lived with your spouse at any time in • 2018, or 120,000 2. $120,000 for all others ... ... • 3. Subtract line 2 from line 1 ... 1,000 3. 4. Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return • and you lived with your spouse at any time during the year, or 15,000 $15,000 for all others ... ... 4. • 5. Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). 0.067 If the result is 1.000 or more, enter 1.000 ... 5. 6. Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or • 5,500 Your taxable compensation ... 6. ... • 7. Multiply line 5 by line 6 ... 367 7. Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than 8. 5,140 ... 8. $200, enter $200 ... Enter contributions for the year to other IRAs 9. 0 9. ... 5,500 10. Subtract line 9 from line 6 10. 11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA 5,140 11. contribution limit ... earnings are considered earned and received in the year a different IRA. You can roll amounts over from a designa- ted Roth account or from one Roth IRA to another Roth the excess contribution was made. If you timely filed your 2018 tax return without withdraw- IRA. ing a contribution that you made in 2018, you can still have the contribution returned to you within 6 months of Conversions the due date of your 2018 tax return, excluding exten- sions. If you do, file an amended return with “Filed pur- You can convert a traditional IRA to a Roth IRA. The con- suant to section 301.9100-2” written at the top. Report any version is treated as a rollover, regardless of the conver- related earnings on the amended return and include an sion method used. Most of the rules for rollovers, descri- explanation of the withdrawal. Make any other necessary bed in chapter 1 under Rollover From One IRA Into changes on the amended return. Another , apply to these rollovers. However, the 1-year waiting period doesn’t apply. Applying excess contributions. If contributions to your Roth IRA for a year were more than the limit, you can ap- Conversion methods. You can convert amounts from a ply the excess contribution in 1 year to a later year if the traditional IRA to a Roth IRA in any of the following three contributions for that later year are less than the maximum ways. allowed for that year. . You can receive a distribution from a tradi- Rollover • tional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution. Can You Move Amounts Trustee-to-trustee transfer . You can direct the • trustee of the traditional IRA to transfer an amount Into a Roth IRA? from the traditional IRA to the trustee of the Roth IRA. You may be able to convert amounts from either a tradi- Same trustee transfer . If the trustee of the traditional • tional, SEP, or SIMPLE IRA into a Roth IRA. You may be IRA also maintains the Roth IRA, you can direct the able to roll over amounts from a qualified retirement plan trustee to transfer an amount from the traditional IRA to a Roth IRA. You may be able to recharacterize contri- to the Roth IRA. butions made to one IRA as having been made directly to Page 44 Chapter 2 Roth IRAs

45 Page 45 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Same trustee. If you are a desig- Rollover by nonspouse beneficiary. Conversions made with the same trustee can be made by redesignating the traditional IRA nated beneficiary (other than a surviving spouse) of a de- ceased employee, you can roll over all or part of an eligi- as a Roth IRA, rather than opening a new account or issu- ing a new contract. ble rollover distribution from one of the types of plans listed above into a Roth IRA. You must make the rollover You must include in your gross income distribu- Income. by a direct trustee-to-trustee transfer into an inherited tions from a traditional IRA that you would have had to in- Roth IRA. clude in income if you hadn’t converted them into a Roth You will determine your required minimum distributions IRA. These amounts are normally included in income on in years after you make the rollover based on whether the your return for the year that you converted them from a employee died before his or her required beginning date traditional IRA to a Roth IRA. for taking distributions from the plan. For more informa- tion, see Distributions after the employee’s death under If you must include any amount in your gross in- in Pub. 575. Tax on Excess Accumulation come, you may have to increase your withholding ! CAUTION or make estimated tax payments. See Pub. 505, Income. You must include in your gross income distribu- Tax Withholding and Estimated Tax. tions from a qualified retirement plan that you would have had to include in income if you hadn’t rolled them over into More information. For more information on conversions, a Roth IRA. You don’t include in gross income any part of see Converting From Any Traditional IRA Into a Roth IRA a distribution from a qualified retirement plan that is a re- in chapter 1. turn of basis (after-tax contributions) to the plan that were taxable to you when paid. These amounts are normally in- Rollover From Employer's Plan Into a cluded in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. Roth IRA If you must include any amount in your gross in- You can roll over into a Roth IRA all or part of an eligible come, you may have to increase your withholding ! rollover distribution you receive from your (or your de- CAUTION or make estimated tax payments. See Pub. 505, ceased spouse's): Tax Withholding and Estimated Tax. Employer's qualified pension, profit-sharing, or stock • For more information on eligible rollover distributions bonus plan (including a 401(k) plan); from qualified retirement plans and withholding, see Roll- Annuity plan; • in chapter 1. over From Employer's Plan Into an IRA Tax-sheltered annuity plan (section 403(b) plan); or • Military Death Gratuities and Governmental deferred compensation plan (section • Servicemembers' Group Life 457 plan). Insurance (SGLI) Payments Any amount rolled over is subject to the same rules for Convert- converting a traditional IRA into a Roth IRA. See If you received a military death gratuity or SGLI payment in chapter 1. ing From Any Traditional IRA Into a Roth IRA with respect to a death from injury that occurred after Oc- Also, the rollover contribution must meet the rollover re- tober 6, 2001, you can contribute (roll over) all or part of quirements that apply to the specific type of retirement the amount received to your Roth IRA. The contribution is plan. treated as a qualified rollover contribution. Rollover methods. You can roll over amounts from a The amount you can roll over to your Roth IRA can’t ex- qualified retirement plan to a Roth IRA in one of the follow- ceed the total amount that you received reduced by any ing ways. part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Any military death gratuity or Rollover. You can receive a distribution from a quali- • SGLI payment contributed to a Roth IRA is disregarded fied retirement plan and roll it over (contribute) to a for purposes of the 1-year waiting period between roll- Roth IRA within 60 days after the distribution. Since overs. the distribution is paid directly to you, the payer gener- ally must withhold 20% of it. For rules about making a The rollover must be completed before the end of the 1-year period beginning on the date you received the pay- rollover of a plan loan offset, including a qualified plan ment. Time Limit for Making a Rollover Con- loan offset, see tribution in chapter 1. The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Your employer's qualified Direct rollover option. • Roth IRA that isn’t taxable when distributed. plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Generally, no tax is withheld from any part of the des- Rollover From a Roth IRA ignated distribution that is directly paid to the trustee You can withdraw, tax free, all or part of the assets from of the Roth IRA. one Roth IRA if you contribute them within 60 days to an- other Roth IRA. Most of the rules for rollovers, described Chapter 2 Roth IRAs Page 45

46 Page 46 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Rollover From One IRA Into Another , claim the retirement savings contributions credit if your in chapter 1 under modified AGI isn’t more than: apply to these rollovers. However, rollovers from retire- ment plans other than Roth IRAs are disregarded for pur- $63,000 if your filing status is married filing jointly; • poses of the 1-year waiting period between rollovers. $47,250 if your filing status is head of household; or • A rollover from a Roth IRA to an employer retirement $31,500 if your filing status is single, married filing • plan isn’t allowed. separately, or qualifying widow(er). A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth Introduction IRA. eligible You may be able to take a tax credit if you make If you roll over an amount from one Roth IRA to another (defined later) to a qualified retirement plan, contributions Roth IRA, the 5-year period used to determine qualified an eligible deferred compensation plan, or an IRA. You distributions doesn’t change. The 5-year period begins may be able to take a credit of up to $1,000 (up to $2,000 with the first tax year for which the contribution was made if filing jointly). This credit could reduce the federal income What Are Qualified Distribu- to the initial Roth IRA. See tax you pay dollar for dollar. in chapter 2 of Pub. 590-B. tions Rollover of Exxon Valdez Settlement Can you claim the credit? If you make eligible contribu- Income tions to a qualified retirement plan, an eligible deferred compensation plan, or an IRA, you can claim the credit if If you are a qualified taxpayer (defined in chapter 1, ear- all of the following apply. (de- qualified settlement income lier) and you received fined in chapter 1, earlier), you can contribute all or part of You were born before January 2, 2001. 1. the amount received to an eligible retirement plan which full-time student 2. You aren’t a (explained later). includes a Roth IRA. The rules for contributing qualified settlement income to a Roth IRA are the same as the rules No one else, such as your parent(s), claims an ex- 3. for contributing qualified settlement income to a traditional emption for you on their tax return. IRA with the following exception. Qualified settlement in- Your adjusted gross income 4. (defined below) isn’t come that is contributed to a Roth IRA, or to a designated more than: Roth account, will be: a. $63,000 if your filing status is married filing jointly; Included in your taxable income for the year the quali- • fied settlement income was received, and b. $47,250 if your filing status is head of household; or Treated as part of your cost basis (investment in the • contract) in the Roth IRA that isn’t taxable when dis- $31,500 if your filing status is single, married filing c. tributed. separately, or qualifying widow(er). For more information, see Rollover of Exxon Valdez You are a full-time student if, dur- Full-time student. Settlement Income in chapter 1. ing some part of each of 5 calendar months (not necessa- rily consecutive) during the calendar year, you are either: A full-time student at a school that has a regular • teaching staff, course of study, and regularly enrolled body of students in attendance; or 3. A student taking a full-time, on-farm training course • given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of Retirement Savings students in attendance, or a state, county, or local government. Contributions Credit You are a full-time student if you are enrolled for the num- ber of hours or courses the school considers to be full (Saver's Credit) time. This is generally the amount Adjusted gross income. on line 7 of your 2018 Form 1040; or line 35 of your 2018 What's New Form 1040NR. However, you must add to that amount any exclusion or deduction claimed for the year for: Modified AGI limit for retirement savings contribu- Foreign earned income, • For 2018, you may be able to tions credit increased. Foreign housing costs, • Page 46 Chapter 3 Retirement Savings Contributions Credit (Saver's Credit)

47 Page 47 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Distributions from an eligible retirement plan that are 7. Income for bona fide residents of American Samoa, • converted or rolled over to a Roth IRA. and Income from Puerto Rico. • Distributions from a military retirement plan. 8. 9. Distributions from an inherited IRA by a nonspousal Eligible contributions. These include: beneficiary. Contributions to a traditional or Roth IRA; 1. Distributions received by spouse. Any distributions Salary reduction contributions (elective deferrals, in- 2. your spouse receives are treated as received by you if you cluding amounts designated as after-tax Roth contri- file a joint return with your spouse both for the year of the butions) to: distribution and for the year for which you claim the credit. a. A 401(k) plan (including a SIMPLE 401(k)), Testing period. The testing period consists of the year for which you claim the credit, the period after the b. A section 403(b) annuity, end of that year and before the due date (including exten- c. An eligible deferred compensation plan of a state sions) for filing your return for that year, and the 2 tax or local government (a governmental 457 plan), years before that year. A SIMPLE IRA plan, or d. You and your spouse filed joint returns in Example. 2016 and 2017, and plan to do so in 2018 and 2019. You A salary reduction SEP; and e. received a taxable distribution from a qualified plan in Contributions to a section 501(c)(18) plan. 3. 2016 and a taxable distribution from an eligible deferred compensation plan in 2017. Your spouse received taxable They also include voluntary after-tax employee contribu- distributions from a Roth IRA in 2018 and tax-free distribu- tions to a tax-qualified retirement plan or section 403(b) tions from a Roth IRA in 2019 before April 15. You made annuity. For purposes of the credit, an employee contribu- eligible contributions to an IRA in 2018 and you otherwise tion will be voluntary as long as it isn’t required as a condi- qualify for this credit. You must reduce the amount of your tion of employment. qualifying contributions in 2018 by the total of the distribu- Reducing eligible contributions. Reduce your eligible tions you received in 2016, 2017, 2018, and 2019. contributions (but not below zero) by the total distributions Maximum eligible contributions. After your contribu- (defined later) from testing period you received during the tions are reduced, the maximum annual contribution on Eligible any IRA, plan, or annuity included above under which you can base the credit is $2,000 per person. contributions. Also reduce your eligible contributions by any distribution from a Roth IRA that isn’t rolled over, even The amount of this credit won’t Effect on other credits. if the distribution isn’t taxable. change the amount of your refundable tax credits. A re- Don’t reduce your eligible contributions by any of the fundable tax credit, such as the earned income credit or following. the refundable amount of your child tax credit, is an 1. The portion of any distribution which isn’t includible in amount that you would receive as a refund even if you income because it is a trustee-to-trustee transfer or a didn’t otherwise owe any taxes. rollover distribution. This is a nonrefundable credit. The Maximum credit. 2. Distributions that are taxable as the result of an amount of the credit in any year can’t be more than the in-plan rollover to your designated Roth account. amount of tax that you would otherwise pay (not counting any refundable credits) in any year. If your tax liability is 3. Any distribution that is a return of a contribution to an reduced to zero because of other nonrefundable credits, IRA (including a Roth IRA) made during the year for such as the credit for child and dependent care expenses, which you claim the credit if: then you won’t be entitled to this credit. The distribution is made before the due date (in- a. cluding extensions) of your tax return for that year, How to figure and report the credit. The amount of the credit you can get is based on the contributions you make You don’t take a deduction for the contribution, b. and your credit rate. Your credit rate can be as low as and 10% or as high as 50%. Your credit rate depends on your c. The distribution includes any income attributable income and your filing status. See Form 8880 to deter- to the contribution. mine your credit rate. The maximum contribution taken into account is $2,000 4. Loans from a qualified employer plan treated as a dis- per person. On a joint return, up to $2,000 is taken into ac- tribution. count for each spouse. Distributions of excess contributions or deferrals (and 5. Figure the credit on Form 8880. Report the credit on income attributable to excess contributions and defer- Schedule 3 (Form 1040), line 51; or line 48 of your Form rals). 1040NR and attach Form 8880 to your return. Distributions of dividends paid on stock held by an 6. employee stock ownership plan under section 404(k). Chapter 3 Retirement Savings Contributions Credit (Saver's Credit) Page 47

48 Page 48 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. You may also be able to access tax law information in • your electronic filing software. 4. Getting tax forms and publications. IRS.gov/ Go to to view, download, or print all of the forms and pub- Forms How To Get Tax Help lications you may need. You can also download and view popular tax publications and instructions (including the If you have questions about a tax issue, need help prepar- 1040 instructions) on mobile devices as an eBook at no ing your tax return, or want to download free publications, charge. Or you can go to to place an IRS.gov/OrderForms forms, or instructions, go to IRS.gov and find resources order and have forms mailed to you within 10 business that can help you right away. days. Major tax reform legislation impacting indi- Tax reform. Access your online account (individual taxpayers viduals, businesses, and tax-exempt entities was enacted IRS.gov/Account to securely access infor- only). Go to in the Tax Cuts and Jobs Act on December 22, 2017. Go mation about your federal tax account. for information and updates on IRS.gov/TaxReform to View the amount you owe, pay online, or set up an on- • how this legislation affects your taxes. line payment agreement. Preparing and filing your tax return. Find free options Access your tax records online. • to prepare and file your return on IRS.gov or in your local Review the past 24 months of your payment history. • community if you qualify. The Volunteer Income Tax Assistance (VITA) program Go to to review the required IRS.gov/SecureAccess • offers free tax help to people who generally make $55,000 identity authentication process. or less, persons with disabilities, and limited-Eng- lish-speaking taxpayers who need help preparing their Using direct deposit. The fastest way to receive a tax own tax returns. The Tax Counseling for the Elderly (TCE) e-file . Direct refund is to combine direct deposit and IRS program offers free tax help for all taxpayers, particularly deposit securely and electronically transfers your refund those who are 60 years of age and older. TCE volunteers directly into your financial account. Eight in 10 taxpayers specialize in answering questions about pensions and re- use direct deposit to receive their refund. The IRS issues tirement-related issues unique to seniors. more than 90% of refunds in less than 21 days. You can go to IRS.gov to see your options for preparing Refund timing for returns claiming certain credits. and filing your return which include the following. The IRS can’t issue refunds before mid-February 2019 for to see if you qualify IRS.gov/FreeFile Free File. Go to • returns that claimed the earned income credit (EIC) or the to use brand-name software to prepare and e-file your additional child tax credit (ACTC). This applies to the en- federal tax return for free. tire refund, not just the portion associated with these cred- Go to IRS.gov/VITA , download the free IRS2Go VITA. • its. app, or call 800-906-9887 to find the nearest VITA lo- The quickest Getting a transcript or copy of a return. cation for free tax return preparation. IRS.gov/ way to get a copy of your tax transcript is to go to IRS.gov/TCE TCE. Go to , download the free IRS2Go • Transcripts . Click on either "Get Transcript Online" or "Get app, or call 888-227-7669 to find the nearest TCE lo- Transcript by Mail" to order a copy of your transcript. If cation for free tax return preparation. you prefer, you can: Getting answers to your tax questions. On Order your transcript by calling 800-908-9946, or • IRS.gov, get answers to your tax questions any- Mail Form 4506-T or Form 4506T-EZ (both available • time, anywhere. on IRS.gov). IRS.gov/Help Go to for a variety of tools that will help • you get answers to some of the most common tax Using online tools to help prepare your return. Go to questions. IRS.gov/Tools for the following. for the Interactive Tax Assistant, a IRS.gov/ITA Go to • The Earned Income Tax Credit Assistant ( IRS.gov/ • tool that will ask you questions on a number of tax law ) determines if you’re eligible for the EITCAssistant topics and provide answers. You can print the entire EIC. interview and the final response for your records. ) helps you IRS.gov/EIN Online EIN Application The ( • IRS.gov/Pub17 to get Pub. 17, Your Federal In- Go to • get an employer identification number. come Tax for Individuals, which features details on ( IRS Withholding Calculator ) es- The IRS.gov/W4App • tax-saving opportunities, 2018 tax changes, and thou- timates the amount you should have withheld from sands of interactive links to help you find answers to your paycheck for federal income tax purposes and your questions. View it online in HTML, as a PDF, or can help you perform a “paycheck checkup.” download it to your mobile device as an eBook. Page 48 Chapter 4 How To Get Tax Help

49 Page 49 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. The First Time Homebuyer Credit Account Look-up Go to IRS.gov/Payments for What if I can’t pay now? • more information about your options. ) tool provides information on IRS.gov/HomeBuyer ( your repayments and account balance. ( online payment agreement Apply for an IRS.gov/ • OPA ( Sales Tax Deduction Calculator The IRS.gov/ ) to meet your tax obligation in monthly install- • ments if you can’t pay your taxes in full today. Once SalesTax ) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040), you complete the online process, you will receive im- mediate notification of whether your agreement has choose not to claim state and local income taxes, and been approved. you didn’t save your receipts showing the sales tax you paid. Use the Offer in Compromise Pre-Qualifier ( IRS.gov/ • ) to see if you can settle your tax debt for less than OIC Resolving tax-related identity theft issues. the full amount you owe. The IRS doesn’t initiate contact with taxpayers by • email or telephone to request personal or financial in- Checking the status of an amended return. Go to formation. This includes any type of electronic com- to track the status of Form 1040X amen- IRS.gov/WMAR munication, such as text messages and social media ded returns. Please note that it can take up to 3 weeks channels. from the date you mailed your amended return for it to show up in our system and processing it can take up to 16 Go to IRS.gov/IDProtection for information. • weeks. If your SSN has been lost or stolen or you suspect • Go to Understanding an IRS notice or letter. IRS.gov/ you’re a victim of tax-related identity theft, visit Notices to find additional information about responding to IRS.gov/IdentiityTheft to learn what steps you should an IRS notice or letter. take. Keep in mind, many Contacting your local IRS office. Checking on the status of your refund. questions can be answered on IRS.gov without visiting an . Go to IRS.gov/Refunds • IRS Tax Assistance Center (TAC). Go to IRS.gov/ The IRS can’t issue refunds before mid-February 2019 • LetUsHelp for the topics people ask about most. If you still for returns that claimed the EIC or the ACTC. This ap- need help, IRS TACs provide tax help when a tax issue plies to the entire refund, not just the portion associ- can’t be handled online or by phone. All TACs now pro- ated with these credits. vide service by appointment so you’ll know in advance that you can get the service you need without long wait Download the official IRS2Go app to your mobile de- • IRS.gov/TACLocator to find times. Before you visit, go to vice to check your refund status. the nearest TAC, check hours, available services, and ap- Call the automated refund hotline at 800-829-1954. • pointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on Making a tax payment. The IRS uses the latest encryp- “Local Offices.” tion technology to ensure your electronic payments are safe and secure. You can make electronic payments on- The IRS Video portal Watching IRS videos. line, by phone, and from a mobile device using the ( IRSVideos.gov ) contains video and audio presentations IRS2Go app. Paying electronically is quick, easy, and for individuals, small businesses, and tax professionals. faster than mailing in a check or money order. Go to For tax- Getting tax information in other languages. IRS.gov/Payments to make a payment using any of the payers whose native language isn’t English, we have the following options. following resources available. Taxpayers can find informa- : Pay your individual tax bill or estima- IRS Direct Pay • tion on IRS.gov in the following languages. ted tax payment directly from your checking or sav- ( Spanish ). IRS.gov/Spanish • ings account at no cost to you. ( IRS.gov/Chinese ). Chinese • Choose an approved payment Debit or credit card: • processor to pay online, by phone, and by mobile de- ). ( IRS.gov/Vietnamese Vietnamese • vice. IRS.gov/Korean ). ( Korean • Electronic Funds Withdrawal: Offered only when fil- • ( IRS.gov/Russian ). Russian • ing your federal taxes using tax return preparation software or through a tax professional. The IRS TACs provide over-the-phone interpreter serv- ice in over 170 languages, and the service is available Best op- Electronic Federal Tax Payment System: • free to taxpayers. tion for businesses. Enrollment is required. Mail your payment to the ad- Check or money order: • dress listed on the notice or instructions. You may be able to pay your taxes with cash at Cash: • a participating retail store. Chapter 4 How To Get Tax Help Page 49

50 Page 50 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. How Can You Reach TAS? The Taxpayer Advocate TAS has offices in every state, the District of Columbia, . Your local advocate’s number is in your and Puerto Rico Service (TAS) Is Here To Help local directory and at TaxpayerAdvocate.IRS.gov/ . You can also call them at 877-777-4778. Contact-Us You How Else Does TAS Help Taxpayers? What is TAS? TAS works to resolve large-scale problems that affect organization within the IRS that independent TAS is an many taxpayers. If you know of one of these broad issues, helps taxpayers and protects taxpayer rights. Their job is please report it to them at IRS.gov/SAMS . to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill , which TAS also has a website, Tax Reform Changes . of Rights shows you how the new tax law may change your future tax filings and helps you plan for these changes. The in- formation is categorized by tax topic in the order of the How Can You Learn About Your TaxChanges.us IRS Form 1040. Go to for more informa- Taxpayer Rights? tion. The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov what to help you understand Low Income Taxpayer Clinics these rights mean to you and how they apply. These are (LITCs) rights. Know them. Use them. your LITCs are independent from the IRS. LITCs represent in- What Can TAS Do For You? dividuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, ap- TAS can help you resolve problems that you can’t resolve peals, and tax collection disputes. In addition, clinics can with the IRS. And their service is free. If you qualify for provide information about taxpayer rights and responsibili- their assistance, you will be assigned to one advocate ties in different languages for individuals who speak Eng- who will work with you throughout the process and will do lish as a second language. Services are offered for free or everything possible to resolve your issue. TAS can help a small fee. To find a clinic near you, visit you if: TaxpayerAdvocate.IRS.gov/LITCmap or see IRS Pub. Your problem is causing financial difficulty for you, • Low Income Taxpayer Clinic List 4134, . your family, or your business; You face (or your business is facing) an immediate • threat of adverse action; or You’ve tried repeatedly to contact the IRS but no one • has responded, or the IRS hasn’t responded by the date promised. Page 50 Chapter 4 How To Get Tax Help

51 Page 51 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendices To help you complete your tax return, Worksheet 3, Computation of c. benefits and are subject to the IRA use the following appendices that in- Taxable Social Security Bene- deduction phaseout rules. A fil- fits. clude worksheets and tables. led-in example is included. a. Worksheet 1, Computation of —Summary Record 1. Appendix A Comprehensive Example and d. Modified AGI. completed worksheets. of Traditional IRA(s) for 2018. b. Worksheet 2, Computation of 2. —Worksheets you Appendix B Traditional IRA Deduction for use if you receive social security 2018. Publication 590-A (2018) Page 51

52 Page 52 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Summary Record of Traditional IRA(s) for Appendix A. 2018 Keep for Your Records Name ______________________________________ I was not covered by my employer's retirement plan during the year. covered 1 2 on ______________________________________(month) (day) (year) I became 59 / 1 / 2 I became 70 on ______________________________________(month) (day) (year) Contributions Check if Fair Market Value of IRA as Amount contributed for rollover of December 31, 2018, contribution Name of traditional IRA 2018 from Form 5498 Date 1. 2. 3. 4. 5. 6. 7. 8. Total Total contributions deducted on tax return ... $ Total contributions treated as nondeductible on Form 8606 ... $ Distributions Reason (for example, retirement, Taxable rollover, amount conversion, withdrawal of reported on Income Name of excess Amount of earned Nontaxable amount from income tax traditional IRA contributions) Date return on IRA Form 8606, line 13 Distribution 1. 2. 3. 4. 5. 6. 7. 8. Total Basis of all traditional IRAs for 2018 and earlier years (from Form 8606, line 14) ... $ Note. You should keep copies of your income tax return, and Forms W-2, 8606, and 5498. Page 52 Publication 590-A (2018)

53 Page 53 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Worksheets for Social Security Recipients Appendix B. Who Contribute to a Traditional IRA Keep for Your Records If you receive social security benefits, have taxable compensation, contribute to your traditional IRA, and you or your spouse Are You Covered by an Employer Plan? is covered by an employer retirement plan, complete the following worksheets. (See in chapter 1.) Use Worksheet 1 to figure your modified adjusted gross income. This amount is needed in the computation of your IRA deduction, if any, which is figured using Worksheet 2. The IRA deduction figured using Worksheet 2 is entered on your tax return. Worksheet 1 Computation of Modified AGI (For use only by taxpayers who receive social security benefits) Check only one box: Filing Status— A. Married filing jointly B. Single, Head of Household, Qualifying Widow(er), or Married filing separately and entire year from your spouse during the lived apart C. Married filing separately and lived with your spouse at during the year any time Adjusted gross income (AGI) from Form 1040 1. (For purposes of this worksheet, figure your AGI without taking into account any social security benefits from Form SSA-1099 or RRB-1099, any deduction for contributions to a traditional IRA, any student loan interest deduction, any domestic production activities deduction or any ... exclusion of interest from savings bonds to be reported on Form 8815.) 1. Enter the amount in box 5 of all Forms SSA-1099 and Forms RRB-1099 ... 2. 2. Enter one-half of line 2 ... 3. 3. 4. Enter the amount of any foreign earned income exclusion, foreign housing exclusion, U.S. possessions income exclusion, exclusion of income from Puerto Rico you claimed as a bona ... 4. fide resident of Puerto Rico, or exclusion of employer-provided adoption benefits Enter the amount of any tax-exempt interest reported on Form 1040, line 2a ... 5. 5. Add lines 1, 3, 4, and 5 6. ... 6. 7. Enter the amount listed below for your filing status. $32,000 if you checked box above. A • $25,000 if you checked box B above. • $0 if you checked box C above. ... ... 7. • 8. ... Subtract line 7 from line 6. If zero or less, enter -0- on this line 8. 9. If line 8 is zero, skip to line 17, enter -0-, and continue with line 18. If line 8 is more than zero, enter the amount listed below for your filing status. $12,000 A above. if you checked box • if you checked box B above. $9,000 • if you checked box C above ... ... $0 9. • Subtract line 9 from line 8. If zero or less, enter -0- 10. ... 10. Enter the smaller of line 8 or line 9 ... 11. 11. 12. Enter one-half of line 11 ... 12. 13. Enter the smaller of line 3 or line 12 ... 13. Multiply line 10 by 0.85. If line 10 is zero, enter -0- 14. ... 14. Add lines 13 and 14 ... 15. 15. 16. Multiply line 2 by 0.85 ... 16. 17. Taxable benefits to be included in modified AGI for traditional IRA deduction purposes. ... 17. Enter the smaller of line 15 or line 16 18. Enter the amount of any employer-provided adoption benefits exclusion and any foreign ... earned income exclusion and foreign housing exclusion or deduction that you claimed 18. 19. Modified AGI for determining your reduced traditional IRA deduction—add lines 1, 17, and 18. Enter here and on line 2 of Worksheet 2 next 19. ... Publication 590-A (2018) Page 53

54 Page 54 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendix B. (Continued) Keep for Your Records Worksheet 2 Computation of Traditional IRA Deduction for 2018 (For use only by taxpayers who receive social security benefits) THEN enter on line 1 IF your filing status is ... AND your modified AGI is over ... below ... married filing jointly or $121,000 $101,000* qualifying widow(er) married filing jointly (you are not covered by an employer plan but your spouse is) $189,000* $199,000 single, or head of household $63,000* $73,000 married filing $0* separately** $10,000 *If your modified AGI over this amount, you can take an IRA deduction for your contributions of up to the lesser isn’t of $5,500 ($6,500 if you are age 50 or older) or your taxable compensation. Skip this worksheet, proceed to Worksheet 3, and enter your IRA deduction on line 2 of Worksheet 3. didn’t live with your spouse at any time during the year, consider your filing status as single. **If you Note. If you were married and you or your spouse worked and you both contributed to IRAs, figure the deduction for each of you separately. Enter the applicable amount from above 1. ... 1. 2. Enter your modified AGI from Worksheet 1, line 19 ... 2. Note. If line 2 is equal to or more than the amount on line 1, stop here; your traditional IRA contributions aren’t deductible. Proceed to Worksheet 3. Subtract line 2 from line 1 3. ... 3. Multiply line 3 by the percentage below that applies to you. If the result isn’t a multiple of 4. $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200. Married filing jointly or qualifying widow(er) and you are • covered by an employer plan, multiply line 3 by 27.5% (0.275) (by 32.5% (0.325) if you are age 50 or older). 4. ... All others, multiply line 3 by 55% (0.55) (by 65% (0.65) if • you are age 50 or older). 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 27; or Form 1040NR, line 27 (deductible part of self-employment tax) and Schedule 1 (Form 1040), line 28; or Form 1040NR, line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are the lower-income spouse, include your spouse's compensation ... 5. reduced by his or her traditional IRA and Roth IRA contributions for this year 6. Enter contributions you made, or plan to make, to your traditional IRA for 2018, but don’t ... 6. enter more than $5,500 ($6,500 if you are age 50 or older) Deduction. Compare lines 4, 5, and 6. Enter the smallest amount here (or a smaller 7. amount if you choose). Enter this amount on the Form 1040 line for your IRA. (If the ... 7. amount on line 6 is more than the amount on line 7, complete line 8.) 8. Nondeductible contributions. Subtract line 7 from line 5 or 6, whichever is smaller. Enter the result here and on line 1 of your Form 8606, Nondeductible IRAs ... 8. Page 54 Publication 590-A (2018)

55 Page 55 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendix B. (Continued) Keep for Your Records Worksheet 3 Computation of Taxable Social Security Benefits (For use by taxpayers who receive social security benefits and take a traditional IRA deduction) Filing Status— Check only one box: Married filing jointly A. B. Single, Head of Household, Qualifying Widow(er), or Married filing separately entire year from your spouse during the lived apart and lived with your spouse at any time during the C. Married filing separately and year 1. Adjusted gross income (AGI) from Form 1040 (For purposes of this worksheet, figure your AGI without taking into account any IRA deduction, any student loan interest deduction, any domestic production activities deduction, or any social security benefits from Form SSA-1099 or RRB-1099, or any ... 1. exclusion of interest from savings bonds to be reported on Form 8815.) Deduction(s) from line 7 of Worksheet(s) 2 ... 2. 2. 3. ... Subtract line 2 from line 1 3. 4. Enter amount in box 5 of all Forms SSA-1099 and Forms RRB-1099 ... 4. Enter one-half of line 4 5. ... 5. 6. Enter the amount of any foreign earned income exclusion, foreign housing exclusion, exclusion of income from U.S. possessions, exclusion of income from Puerto Rico you claimed as a bona fide resident of Puerto Rico, or exclusion of employer-provided 6. adoption benefits ... Enter the amount of any tax-exempt interest reported on line 2a of Form 1040 7. ... 7. 8. ... Add lines 3, 5, 6, and 7 8. 9. Enter the amount listed below for your filing status. $32,000 if you checked box A above. • above. $25,000 if you checked box B • if you checked box C above. ... ... 9. $0 • Subtract line 9 from line 8. If zero or less, enter -0- on this line ... 10. 10. If line 10 is zero, stop here . None of your social security benefits are taxable. 11. If line 10 is more than zero, enter the amount listed below for your filing status. $12,000 if you checked box A above. • $9,000 B above. if you checked box • $0 if you checked box above. ... ... 11. C • 12. Subtract line 11 from line 10. If zero or less, enter -0- ... 12. 13. Enter the smaller of line 10 or line 11 ... 13. 14. ... Enter one-half of line 13 . 14. Enter the smaller of line 5 or line 14 ... 15. 15. 16. Multiply line 12 by 0.85. If line 12 is zero, enter -0- ... 16. 17. ... Add lines 15 and 16 17. 18. Multiply line 4 by 0.85 ... 18. 19. Taxable social security benefits. Enter the smaller of line 17 or line 18 ... 19. Publication 590-A (2018) Page 55

56 Page 56 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendix B. (Continued) Keep for Your Records Comprehensive Example Determining Your Traditional IRA Deduction and the Taxable Portion of Your Social Security Benefits John Black is married and files a joint return. He is 65 years old and had 2018 wages of $90,500. His wife didn’t work in 2018. He also received social security benefits of $12,000 and made a $6,000 contribution to his traditional IRA for the year. He had no foreign income, no tax-exempt interest, and no adjustments to income on lines 23 through 36 on his Schedule 1 (Form 1040). He participated in a section 401(k) retirement plan at work. John completes Worksheets 1 and 2. Worksheet 2 shows that his 2018 IRA deduction is $5,950. He must either withdraw the contributions that are more than the deduction (the $50 shown on line 8 of Worksheet 2), or treat the excess amounts as nondeductible contributions (in which case he must complete Form 8606 and attach it to his Form 1040). The completed worksheets that follow show how John figured his modified AGI to determine the IRA deduction and the taxable social security benefits to report on his Form 1040. Worksheet 1 Computation of Modified AGI (For use only by taxpayers who receive social security benefits) Filing Status— Check only one box: A. Married filing jointly B. Single, Head of Household, Qualifying Widow(er), or Married filing separately and entire year lived apart from your spouse during the C. Married filing separately and lived with your spouse at any time during the year Adjusted gross income (AGI) from Form 1040 1. (For purposes of this worksheet, figure your AGI without taking into account any social security benefits from Form SSA-1099 or RRB-1099, any deduction for contributions to a traditional IRA, any student loan interest deduction, any domestic production activities deduction or, or 90,500 1. any exclusion of interest from savings bonds to be reported on Form 8815.) ... 2. ... Enter the amount in box 5 of all Forms SSA-1099 and Forms RRB-1099 12,000 2. 3. Enter one-half of line 2 6,000 ... 3. Enter the amount of any foreign earned income exclusion, foreign housing exclusion, U.S. 4. possessions income exclusion, exclusion of income from Puerto Rico you claimed as a bona 0 fide resident of Puerto Rico, or exclusion of employer-provided adoption benefits ... 4. ... Enter the amount of any tax-exempt interest reported on Form 1040, line 2a 0 5. 5. 6. Add lines 1, 3, 4, and 5 ... 96,500 6. 7. Enter the amount listed below for your filing status. $32,000 if you checked box A above. • $25,000 if you checked box B above. • 32,000 $0 if you checked box C above. ... ... 7. • 8. ... Subtract line 7 from line 6. If zero or less, enter -0- on this line 64,500 8. 9. If line 8 is zero, skip to line 17, enter -0-, and continue with line 18. If line 8 is more than zero, enter the amount listed below for your filing status. $12,000 A above. if you checked box • if you checked box B above. $9,000 • 12,000 if you checked box $0 above ... ... 9. C • Subtract line 9 from line 8. If zero or less, enter -0- ... 52,500 10. 10. Enter the smaller of line 8 or line 9 ... 12,000 11. 11. 12. Enter one-half of line 11 ... 6,000 12. 13. ... Enter the smaller of line 3 or line 12 6,000 13. 14. ... 44,625 Multiply line 10 by 0.85. If line 10 is zero, enter -0- 14. Add lines 13 and 14 ... 15. 50,625 15. 16. Multiply line 2 by 0.85 ... 10,200 16. 17. Taxable benefits to be included in modified AGI for traditional IRA deduction purposes. 10,200 Enter the smaller of line 15 or line 16 17. ... 18. Enter the amount of any employer-provided adoption benefits exclusion and any foreign 0 ... earned income exclusion and foreign housing exclusion or deduction that you claimed 18. 19. Modified AGI for determining your reduced traditional IRA deduction—add lines 1, 17, and 100,700 ... 19. 18. Enter here and on line 2 of Worksheet 2 next Page 56 Publication 590-A (2018)

57 Page 57 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendix B. (Continued) Keep for Your Records Worksheet 2 Computation of Traditional IRA Deduction for 2018 (For use only by taxpayers who receive social security benefits) THEN enter on line 1 IF your filing status is ... AND your modified AGI is over ... below ... married filing jointly or $121,000 $101,000* qualifying widow(er) married filing jointly (you aren’t covered by an employer plan but your spouse is) $189,000* $199,000 single, or head of household $63,000* $73,000 married filing $0* separately** $10,000 *If your modified AGI over this amount, you can take an IRA deduction for your contributions of up to the lesser isn’t of $5,500 ($6,500 if you are age 50 or older) or your taxable compensation. Skip this worksheet, proceed to Worksheet 3, and enter your IRA deduction on line 2 of Worksheet 3. didn’t live with your spouse at any time during the year, consider your filing status as single. **If you Note. If you were married and you or your spouse worked and you both contributed to IRAs, figure the deduction for each of you separately. Enter the applicable amount from above 1. 121,000 ... 1. 2. Enter your modified AGI from Worksheet 1, line 19 ... 102,700 2. Note. If line 2 is equal to or more than the amount on line 1, stop here; your traditional IRA contributions aren’t deductible. Proceed to Worksheet 3. Subtract line 2 from line 1 18,300 3. ... 3. Multiply line 3 by the percentage below that applies to you. If the result isn’t a multiple of 4. $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200. Married filing jointly or qualifying widow(er) and you are • covered by an employer plan, multiply line 3 by 27.5% 5,950 (0.275) (by 32.5% (0.325) if you are age 50 or older). 4. ... All others, multiply line 3 by 55% (0.55) (by 65% (0.65) if • you are age 50 or older). 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 27; or Form 1040NR, line 27 (deductible part of self-employment tax) and Schedule 1 (Form 1040), line 28; or Form 1040NR, line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are the lower-income spouse, include your spouse's compensation 90,500 ... 5. reduced by his or her traditional IRA and Roth IRA contributions for this year 6. Enter contributions you made, or plan to make, to your traditional IRA for 2017, but don’t 6,000 ... 6. enter more than $5,500 ($6,500 if you are age 50 or older) Deduction. Compare lines 4, 5, and 6. Enter the smallest amount here (or a smaller 7. amount if you choose). Enter this amount on the Form 1040 line for your IRA. (If the 5,950 ... 7. amount on line 6 is more than the amount on line 7, complete line 8.) 8. Nondeductible contributions. Subtract line 7 from line 5 or 6, whichever is smaller. 50 Enter the result here and on line 1 of your Form 8606, Nondeductible IRAs ... 8. Publication 590-A (2018) Page 57

58 Page 58 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Appendix B. (Continued) Keep for Your Records Worksheet 3 Computation of Taxable Social Security Benefits (For use by taxpayers who receive social security benefits and take a traditional IRA deduction) Check only one box: Filing Status— Married filing jointly A. B. Single, Head of Household, Qualifying Widow(er), or Married filing separately entire year and from your spouse during the lived apart Married filing separately and lived with your spouse at any time C. during the year 1. Adjusted gross income (AGI) from Form 1040 (For purposes of this worksheet, figure your AGI without taking into account any IRA deduction, any student loan interest deduction, any social security benefits from Form SSA-1099 or RRB-1099, any domestic production activities deduction or any exclusion of 90,500 1. interest from savings bonds to be reported on Form 8815.) ... 2. ... 5,950 Deduction(s) from line 7 of Worksheet(s) 2 2. 3. ... 84,550 Subtract line 2 from line 1 3. Enter amount in box 5 of all Forms SSA-1099 and Forms RRB-1099 4. 12,000 ... 4. Enter one-half of line 4 ... 5. 6,000 5. 6. Enter the amount of any foreign earned income exclusion, foreign housing exclusion, exclusion of income from U.S. possessions, exclusion of income from Puerto Rico you claimed as a bona fide resident of Puerto Rico, or exclusion of employer-provided 0 6. adoption benefits ... Enter the amount of any tax-exempt interest reported on Form 1040, line 2a ... 7. 0 7. 8. ... 90,550 Add lines 3, 5, 6, and 7 8. 9. Enter the amount listed below for your filing status. $32,000 if you checked box A above. • above. $25,000 if you checked box B • 32,000 if you checked box C above. ... ... 9. $0 • Subtract line 9 from line 8. If zero or less, enter -0- on this line. ... 58,550 10. 10. If line 10 is zero, stop here . None of your social security benefits are taxable. 11. If line 10 is more than zero, enter the amount listed below for your filing status. $12,000 if you checked box A above. • $9,000 B above. if you checked box • 12,000 $0 if you checked box above ... ... 11. C • 12. Subtract line 11 from line 10. If zero or less, enter -0- ... 46,550 12. 13. Enter the smaller of line 10 or line 11 12,000 ... 13. 14. ... 6,000 Enter one-half of line 13 . 14. Enter the smaller of line 5 or line 14 ... 15. 6,000 15. 16. Multiply line 12 by 0.85. If line 12 is zero, enter -0- ... 39,570 16. 17. ... 45,570 Add lines 15 and 16 17. 18. Multiply line 4 by 0.85 ... 10,200 18. 19. Taxable social security benefits. Enter the smaller of line 17 or line 18 ... 10,200 19. Page 58 Publication 590-A (2018)

59 Page 59 of 61 10:37 - 21-Dec-2018 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. To help us develop a more useful index, please let us know if you have ideas for index entries. See “Comments and Suggestions” in the “Introduction” for the ways you can reach us. Index Deductible this year (Worksheet Nondeductible Nondeductible ( See 1-6) 36 contributions ) 32 10% additional tax Deductible this year if any were Not required 10 20% withholding 25 8 Qualified reservist repayments deducted in closed tax year 6% excise tax on excess Recharacteri Recharacterizing See ( (Worksheet 1-7) 38 43 contributions to Roth IRAs zation Deducting in a later year 36 ) 60-day period for rollovers 21 Due to incorrect rollover Retirement savings contributions information credit 47 36 A – 44 Roth IRAs 30 Recharacterizing 39 Additional taxes 33 8 43 Roth IRAs , 9 Traditional IRAs See also ( Penalties ) Tax When to contribute 9 32 38 Reporting Withdrawing before due date of Withdrawn after due date of 13 Adjusted gross income (AGI) , return 31 return 35 39 Conversions: 35 Withdrawn by due date of return See also ( Modified adjusted gross Exempt transactions 33 44 To Roth IRAs ) income (AGI) Exxon Valdez settlement Credits: Retirement savings contributions 46 , 28 income Retirement savings contributions 46 credit 47 , 46 credit Age 50: F 8 Contributions D Federal judges 11 Age 70 1/2 rule 10 Fiduciaries: Deductions: Age limit: 15 Figuring reduced IRA deduction Prohibited transactions 33 9 Traditional IRA Phaseout Filing before IRA contribution is 12 27 Airline payments – 10 Traditional IRAs 16 made 10 6 Alimony Deemed IRAs 9 Filing status 38 Annuity contracts 9 Deduction phaseout and 13 Defined benefit plans 11 Borrowing on 33 Defined contribution plans 12 Firefighters, volunteer 11 Tax help ) See ( Assistance Form 1040: Distributions: 14 Contributions in same year as 14 Modified AGI calculation from B Income from 14 Form 1099-R: Basis: ) See 38 Inherited IRAs Inherited IRAs ( Distribution code 1 used on 16 Traditional IRAs Withdrawal of excess Divorce: Bond purchase plans: 27 Rollovers by former spouse contribution 35 Rollovers from 27 38 28 Transfers incident to Form 5329 Individual See ( Bonds, retirement 15 Form 8606 retirement bonds ) 16 Failure to file, penalty E Broker's commissions 10 , 8 Form 8880 47 Early distributions 33 Form W-2: See also ) Penalties ( Employer retirement plans 11 C 32 Tax 23 Frozen deposits 34 Collectibles Employer and employee Full-time student: Community property 8 association trust accounts 7 Retirement savings contributions Compensation: Employer plans: credit 46 6 Alimony Covered by 11 Defined 6 11 Year(s) covered Income included (Table 1-1) 6 H Employer retirement plans 11 6 Nontaxable combat pay 11 Defined benefit plans How to: 6 Self-employment Set up an IRA 6 Defined contribution plans 11 6 Wages, salaries, etc. Effect of modified AGI on deduction 35 Treat withdrawn contributions 26 Conduit IRAs (Table 1-2) 13 Contribution limits: 12 Limit if covered by I More than one IRA 9 Prohibited transactions 33 49 Identity theft Contributions: ( Endowment contracts Annuity See 7 Individual retirement accounts 10 Designating the year contracts ) Individual retirement annuities 7 Distributions in same year as 14 – Excess contributions 38 34 Individual retirement arrangements ) Excess ( See Excess contributions Closed tax year 38 (IRAs): Less than maximum 9 35 Deducted in earlier year How to set up 6 Publication 590-A (2018) Page 59

60 Page 60 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 6 Tax treatment of rollover from 34 , 33 Prohibited transactions When to set up 7 Individual retirement bonds Reporting 38 traditional IRA to eligible 12 retirement plan other than an 20 Inherited IRAs Phaseout of deduction Pledging account as security 33 21 IRA Rollovers 24 34 , 33 2 Prohibited transactions Time limit 21 Interest on IRA 33 Taxes on To Roth IRAs 44 Investment in collectibles: Tax help To traditional IRA 21 See 34 ( Publications Collectibles defined ) 26 , Waiting period between 34 Exception 23 ( See Withholding ) Withholding Q 38 Roth IRAs K Qualified domestic relations orders Age limit 39 Kay Bailey Hutchison Spousal 27 (QDROs) Contribution limit reduced 41 46 , 28 Qualified settlement income IRAs: Determining reduced limit Contribution limits 9 (Worksheet 2-2) 43 10 Deductions 44 39 Contributions – R Roth IRA contribution limits 39 43 Timing of Recharacterization 31 – 29 Keogh plans: To traditional IRAs and to Roth Determining amount of net income 27 Rollovers from 39 IRAs due to contribution and total Conversion 44 29 , amount to be recharacterized 39 Defined L (Worksheet 1-3) 30 Excess contributions 43 Reporting 31 Last-in first-out rule 32 Modified AGI: 27 Life insurance Timing of 30 Effect on contribution amount Recordkeeping requirements: 42 (Table 2-1) Summary record of traditional IRAs 40 Figuring (Worksheet 2-1) M for 2018 (Appendix A) 52 45 Rollovers from 45 Military death gratuities 16 Traditional IRAs 39 Setting up 2 Missing children, photographs of Reporting: 39 Spouse Modified adjusted gross income 38 Additional taxes Traditional IRAs converted into 29 (AGI): 15 Deductible contributions Employer retirement plan coverage 31 Recharacterization 13 and deduction (Table 1-2) Rollovers: S 15 Figuring (Worksheet 1-1) From employer plans 27 9 Section 501(c)(18) plan No employer retirement plan From IRAs 24 23 Self-certification coverage and deduction 12 Reservists Self-employed persons: (Table 1-3) 13 8 Qualified reservist repayments 15 Deductible contributions Roth IRAs 39 Retirement bonds ( See Individual 6 Income of Effect on contribution amount ) retirement bonds Separated taxpayers: 42 (Table 2-1) Retirement savings contributions 13 Filing status of More than one IRA 9 credit 46 , 47 Servicemembers group life Recharacterization 31 21 – 27 Rollovers insurance 45 Airline payments 27 Services received at reduced or no Amount 23 34 cost N Choosing an option (Table 1-5) 26 SIMPLE IRAs 7 Nondeductible contributions 15 Completed after 60-day period 21 Traditional IRA, mistakenly moved 15 Failure to report Conduit IRAs 26 to 29 Overstatement penalty 16 25 Direct rollover option Simplified employee pensions Notice: Extension of period 23 7 (SEPs) Qualified employer plan to provide From bond purchase plan 27 Social Security recipients 12 prior to rollover distribution 25 From employer's plan into an Contributions to traditional IRAs, Rollovers 21 24 IRA 53 , 56 worksheet (Appendix B) From employer's plan into a Roth Kay Bailey Spousal IRAs See ( IRA 45 Hutchison Spousal IRAs or P 27 From Keogh plans ) Inherited IRAs 26 , 24 Partial rollovers From one IRA into another 23 Students: Penalties 38 – 33 From Roth IRAs 45 Retirement savings contributions 34 38 Excess contributions – From traditional IRA 21 46 credit Roth IRAs 43 Inherited IRAs 24 Surviving spouse: Exempt transactions 33 34 , 25 Nonspouse beneficiary Rollovers by 27 16 Failure to file Form 8606 Notice 21 Overstatement of nondeductible 24 Partial 26 , 16 contributions Page 60 Publication 590-A (2018)

61 Page 61 of 61 Fileid: ... ions/P590A/2018/A/XML/Cycle05/source 10:37 - 21-Dec-2018 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Disclosures Determining total amount to be 7 withdrawn (Worksheet 1-4) Excess contributions 34 – 38 32 T 20 31 , Traditional IRAs 32 Inherited IRAs Tables: Withholding: 33 Loss of IRA status Compensation, types of 25 Direct rollover option Mistakenly moved to SIMPLE 6 (Table 1-1) Eligible rollover distribution paid to IRA 29 Modified AGI: 25 Recordkeeping 16 taxpayer Employer retirement plan Worksheets: Reduced IRA deduction for coverage and deduction Excess contributions deductible this 16 2018 (Table 1-2) 13 Rollovers ) See Rollovers ( year (Worksheet 1-6) 36 No employer retirement plan If any were deducted in closed 5 Setting up – 8 coverage and deduction 38 tax year (Worksheet 1-7) , 53 , 12 Social Security recipients 13 (Table 1-3) 56 Figuring amount of net income due Roth IRAs, effect on contribution Summary record for 2018 to IRA contribution and total 42 (Table 2-1) (Appendix A) 52 amount to be recharacterized Rollover vs. direct payment to (Worksheet 1-3) 30 20 Transfers taxpayer (Table 1-5) 26 Types of Figuring amount of net income due 7 Using this publication (Table I-1) 4 32 , 31 Withdrawing or using assets to IRA contribution and total Tax advantages of IRAs 3 amount to be withdrawn 20 Transfers Tax credits: 28 Divorce 32 (Worksheet 1-4) Retirement savings contributions Figuring modified AGI (Worksheet To Roth IRAs 20 , 44 47 46 , credit 21 , 44 Trustee to trustee 1-1) 15 48 Tax help 10 8 Trustees' fees Roth IRAs: , Tax-sheltered annuities: 21 Figuring modified AGI Trustee-to-trustee transfers 27 Rollovers from 44 40 (Worksheet 2-1) To Roth IRAs 11 Tax year Figuring reduced contribution Traditional IRAs 5 – 38 43 limit (Worksheet 2-2) Contribution limits 8 9 , U Social Security recipients who Contributions 8 , 9 Unrelated Business Income 34 contribute to traditional IRAs 10 Due date 53 (Appendix B) , 56 To Roth IRAs and to traditional IRAs 39 V 29 Converting into Roth IRA 12 Volunteer firefighters 16 Cost basis – 10 Deductions 16 5 Defined W Withdrawing or using assets: Contribution withdrawal, before due 31 date of return Publication 590-A (2018) Page 61

Related documents