taxes

Rollover funds won't get new tax break

Don Taylorq_v2.gifDear Dr. Don,
I will be rolling over my retirement funds (approximately $21,000) from my most recent job into a traditional rollover IRA. Can I claim a contribution on my taxes for the $5,000 per year that is allowable?

If not, what can I do?
-- Stephanie Stymied

a_v2.gifDear Stephanie,
Transferring your retirement funds from your previous employer into a traditional IRA rollover does not count as a new contribution to an IRA. It's considered a rollover contribution. Your contributions to your employer's plan were tax-deferred compensation when you made them. You don't get two tax breaks on one deferral.

The IRA says it best in its Publication 590, "Individual Retirement Arrangements":

Treatment of rollovers.
You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and Reporting rollovers from employer plans.

As for the last question -- "If not, what can I do?" -- your options haven't changed just because the rollover contribution isn't a tax-deductible contribution. You can keep the money with your old employer's plan or roll it over into a traditional IRA (or a Roth IRA if you are eligible).

Publication 590 has all the details, but talk to your tax professional if you're uncertain about which choice is best for you.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

News alert Create a news alert for "retirement"

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.23%  0.04 4.19%
15 year fixed 3.26%  0.01 3.27%
5/1 ARM 3.70%  0.32 3.38%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.29% --0.00 4.29%
50K FICO-based HELOC 4.04% --0.00 4.04%
100K FICO-based HELOC 3.89% --0.00 3.89%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.99%  0.01 2.98%
60 month new car loan 3.24% --0.00 3.24%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.97%  0.02 0.95%
2 Year CD 1.16%  0.01 1.15%
5 Year CD 1.71%  0.04 1.75%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.75%  0.02 15.77%
Cash Back Cards 16.45%  0.03 16.48%
Low Interest Cards 10.96% --0.00 10.96%
 
Next
advertisement
DAILY TAX TIP NEWSLETTER

Get expert advice during tax season on tax preparation and tips for cutting your tax bill.

advertisement
Do you take advantage of tax-favored retirement savings accounts? Congress is looking at ways to make IRAs and 401(k) plans more a
Partner Center
advertisement

Connect with us