IRA Tax Documents: How to Report Your Retirement Earnings

According to the Tax Policy Center, over 60 million Americans own an individual retirement account, otherwise known as an IRA. While most people have IRAs through their employers, there are numerous different types of IRAs, including SEP IRAs, SIMPLE IRas, and more that you can access and invest in yourself.

However, regardless of where your account came from, you’re still going to have to report your retirement earnings on your tax return. This can be a little confusing, so we'll walk you through the process step-by-step. We'll also let you know what other forms you may need to file depending on your situation.

So whether you're just getting started with your IRA or you've been contributing for years, make sure to read through this thoroughly and pass it on to any co-workers or employees who might be wondering how to make sense of their IRA tax documents when it comes time to file.

Do You Have to Deduct IRA Contributions on Your Taxes?

No, you don’t need to file anything on your tax returns in years where you don’t contribute to or withdraw from your IRA. If you didn’t contribute anything to your account, the financial institution where you have your IRA with will still likely send you a Form 5498: IRA Contribution Form just because it covers a variety of information that’s nice to know. This includes more than your current year contributions, including conversions, the fair market value of your investments, and rollovers.

However, if you did contribute to the account during the tax year, you will have to report that. Remember that there are different kinds of IRAs, though. If you have a traditional IRA, you deduct contributions now and pay taxes when you withdraw the money during retirement. If you have a Roth IRA, you pay taxes now but don’t have to worry about anything when you go to withdraw the cash later.

This means that traditional IRA contributions are tax-deductible on both your state and federal tax returns. However, you have to deduct those during the year in which you made the contributions! This is why most people seem to rush and contribute the maximum amount before tax time. It’s a great way to lower your tax bill while still investing that money back into yourself and your future.

Roth IRA contributions aren’t tax deductible so you don’t have to worry about that! You will still need to report your contributions, but you don’t get to deduct that from your total tax bill, unfortunately.

The same goes for SIMPLE and SEP IRAs (read all about those here). If you have one of those plans, chances are that your employer is withholding the contributions straight from your paycheck. This means that income taxes are going to be calculated on your salary after your contributions are made and therefore aren’t deductible.

What If I Made an Early Withdrawal?

If you make an early withdrawal, which is usually before the age of 59 ½, then you’ll be subject to a 10% penalty unless you have a qualifying exception (pretty rare). In addition to that, you’ll also need  to pay the federal income tax due at your current tax rate if you made a withdrawal from an IRA that is similar to a traditional IRA and haven’t paid taxes on that money yet.

Whenever you make withdrawals, you’ll need to report those on your regular tax form 1040 or 1040NR. If you need to pay and file the penalty fee, you’ll use form 5329 for that. Likewise, depending on what else you’ll be reporting, you might be able to simply write that penalty down on line 6 of Schedule 2 on your 1040.

Pretty confusing, right? When it comes to early withdrawals, we really suggest you work with a tax specialist to ensure that you’re paying the right fee and claiming that on your taxes.

What Is IRS Form 5498: IRA Contributions Information?

Okay, so we mentioned Form 5498 above, but what exactly is it? It’s the form you’ll use to organize and report your IRA tax documents, contributions, and withdrawals. And, it’s pretty easy to understand once you understand the basics. There are different boxes depending on which type of IRA you have:

  • Box 1 is for the amount you contributed to a traditional IRA
  • Box 9 is for the amount you contributed to a SIMPLE IRA
  • Box 10 is the amount you contributed to a Roth IRA
  • Boxes 2 and 3 are where you’ll report a rollover or conversion of assets from a different retirement plan into an IRA (note that these aren’t deductible but you still have to report them; you don’t have to report transfers from a traditional IRA to another traditional IRA, or from a SEP IRA to another SEP IRA, though).

Not entirely sure what kind of IRA you have? Look at box 7! Usually, the administrator of your account will note what kind of IRA you have, whether that’s a SEP IRA, SIMPLE IRA, or any of the other standard options.

Outside of understanding what goes in each box and how to turn in the forms, it’s important to keep in mind that you’ll need to understand the contribution limits for the tax year you’re filing in. In 2022, the contribution limits for a traditional IRA is $6,000 if you’re under the age of 50. This means that in box 1, you’ll only be able to put a maximum of $6,000 or else it won’t be valid.

Let Wealth Stack Manage Your Retirement (& Tax Documents!)

Taxes are tough, but learning how to invest correctly to grow your IRA exponentially is even tougher. It’s part of why we created Wealth Stack. We cater to small business owners looking to invest in their own retirement and the retirement of their employees. 

The Wealth Stack Growth Pack offers you the ability to have fully-managed SIMPLE IRA plans for all of your employees on top of the following digital advisory services:

  • Access to hundreds of videos and articles that help provide you and your employees with a solid financial foundation
  • Access to the Wealth Stack app with your own individual retirement account access, including the ability to monitor stocks, view new financial updates, and more
  • The tools and resources you need to learn how to invest in your employees, attract and retain top talent, and access the funding you need at the terms you want
  • Exclusive access to our founder and a former investment banker who will personally assess your business to help you increase its value
  • Access to a platform where we will provide you with capital introductions to investors and alternative sources of funding

That’s just the tip of the iceberg. On top of it all, we’ll manage your tax documents for you if you opt for the IRA plans. We’ve said enough now. Ready to get started? 

Learn more about the Wealth Stack Growth Pack here.