Why many high earners file this form with their tax return:
tax filing deadline gets closer, there is a lot of last-minute planning going on. Taxpayers are getting one final opportunity to fund retirement accounts for tax year 2018. These accounts range from IRAs, Roth IRAs and SEP IRAs to Health Savings Accounts . What many are hoping for is that funding the right account will provide tax benefits on their return.
2019 Bankrate’s March Financial Security Index found that more than 1 in 5 working Americans are not saving for retirement. But due to their income level, these taxpayers need to think strategically about what types of plans to fund. Many of them have phased out the tax benefits from funding an IRA as their adjusted gross income is above the deductibility threshold.
When it comes time to finally take required minimum distributions, a calculation must occur where the taxable versus the nontaxable distributions are prorated. Since many retirees are surprised by their tax liabilities after they start taking distributions, this is one way that the tax bill can be mitigated.For some, however, the nondeductible IRA contribution is merely the first step. Roth IRAs are incredibly attractive as they have tax-deferred growth and tax-free distributions in retirement.
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