IRA IRA Contribution Rules 2

Question 1

What happens if an individual contributes more than the allowed IRA limit in a given year?

Accepted Answer

A 6% excise tax is imposed on the excess amount

Answer

The IRS imposes a 6% excise tax each year on excess IRA contributions until they are corrected.

Question 2

Can a non-working spouse contribute to an IRA if the other spouse has earned income?

Accepted Answer

Yes, through a spousal IRA

Answer

A spousal IRA allows a non-working spouse to contribute based on the working spouse's earned income, provided they file jointly.

Question 3

What is the maximum IRA contribution if a taxpayer's earned income is $3,000 for the year?

Accepted Answer

$3,000

Answer

IRA contributions cannot exceed the lesser of the annual limit or the taxpayer's earned income, so the maximum would be $3,000.

Question 4

Which form is used to report IRA contributions to the IRS?

Accepted Answer

Form 5498

Answer

Form 5498 is issued by the IRA custodian to report contributions, rollovers, and the fair market value of the IRA.

Question 5

How are non-deductible traditional IRA contributions tracked for tax purposes?

Accepted Answer

Form 8606

Answer

Form 8606 is used to track non-deductible traditional IRA contributions to establish basis and avoid double taxation on withdrawals.

IRA - Individual Retirement Account Practice Test