Common misunderstandings we see include:
“I can’t contribute to an IRA or Roth because I have a 401(k).” (Not an issue)
“We can’t contribute to my spouse’s IRA/Roth because he doesn’t work.” (Contribution limits are based on joint income not per taxpayer.)
“I didn’t contribute to my IRA because I made too much to deduct.” (Was a non-deductible contribution or a Roth contribution or a “back-door” Roth considered?)
“I didn’t contribute because my deduction was limited.” (It is permissible to take a partial deduction.)
“I didn’t contribute because of the pro-rata rule.” (The pro-rata rule applies to distributions not contributions, and with some planning, it may not be an issue.)
We also see many taxpayers that don’t take advantage of catch-up contributions.
Paying Tax Twice
Speaking of non-deductible contributions to IRAs. Whenever I see an IRA distribution which is reported as fully taxable, I always ask, “Do you recall any time you made a contribution to your IRA and did not deduct that amount from your taxes?” In many cases, my asking prompts them to remember that they had indeed made non-deductible contributions. A hunt for the records ensues and we are often able to amend returns and get some money refunded.
Missing QCDs