I'm confused. Income in an IRA isn't taxed, so that's not relevant for taxes. If you had post-tax investments then yes it's more complicated, but that has nothing to do with IRA/401k retirement savings?
Anyways, whether it was from the brokerage I opened or the IRA, I had a class of income that would have made me need to pay to file, even though my total income was below 65k.
Another thing was foreign taxes paid (because some funds in one of your indexes are international). But they don't let you just say "listen, I'd rather skip the credit for those two whole dollars in taxes and not pay 50 dollars to file"
It's still a shitty and stupid situation... but that doesn't mean it's relevant for most free filers.
You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.
The limit for IRAs is lower than that for 401ks. It is very common to open a brokerage account if you had more than 5500 you wanted to put away.
(Ex: grad student who interns in the summer, contractor with boom and bust pay cycle, or any worker in a company that doesn't offer a 401k)
>You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.
I'm not sure it's legal to lie about the contents of the 1099-DIV, even if the lie is to the government's benefit :)
I've since optimized my investment strategy (small amount in checking, rest in investments)
The IRS doesn't require institutions to generate 1099s for <10 dollars in interest.
No, income from interest paid on deposit accounts is reported on form 1099-INT, not 1099-DIV.
1099-DIV is for dividend income. 1099-INT for interest income. They are are reported different places on your tax form.
Nowadays most people don't get 1099-INTs from their banks or credit unions because interest rates are so low most people are making no more than $1-$2 a year in interest because rates are so low and financial institutions aren't required to issue 1099-INTs for interest income below $10. I used to get them from my credit union back in high school when rates were higher.
For example, if you had $20,000 in a Chase savings account AND had a "Premier Relationship" with them then you'd get an interest rate of 0.04%, or a whopping $8 in interest for the year.
https://www.chase.com/personal/savings/interest-savings/inte...
Its worth noting that rates have gone up significantly in the last year and a half, at one point it got to the point where checking accounts and savings accounts had the same interest rates at many banks and many people stopped using savings accounts entirely at that point.
The high yield savings accounts tend to have a few strings attached but nothing I’d consider a barrier to someone with at least a job that offers direct deposit.
The biggest barrier to getting a 1090-INT is not the bank or the APR. It is having a low income and not enough money to save.
Me? I currently have fifteen (15) bank accounts. Chasing those sign up bonuses.
High-interest savings account are crappy as investments, and I'd you have to go to a different institution (or use a CD, or both) lack the frictionless (and instant) connection to primary checking that is generally the reason to use a savings account vs. a decent investment vehicle.
https://budgeting.thenest.com/report-dividends-credit-union-...
I never bought into all the credit union jargon ("share," "share draft", etc.) so I forgot they pay "dividends" instead of "interest."
In short, I believe this is the way it works: because credit union members are owners of the credit union, the profit paid to members are considered dividends by dictionary definition, however, the IRS considers them interest by their rules. Just like VA disability, getting a check from the government every month is obviously income, but the IRS doesn't consider VA disability income by their rules.
They clearly mean they ALSO had a taxable brokerage account that generated dividends; saying they contributed to an IRA was an (unintentional) misdirect.
I still stand by my assessment it's not cool to nudge people not to save.
There are many people who'd like to save, but don't have 401ks. (Ex: students doing internships, contractors, or people working in the service industry)
The limit for a 401k is ~18k IIRC and ~5500 for an IRA IIRC. If you had say, 10k from a summer internship, you'd put the difference in a normal, taxable brokerage.
Having a brokerage account does not mean one is affluent.
IRA (traditional and Roth) contribution limit in 2019 is $6k.
Source:
https://www.irs.gov/newsroom/401k-contribution-limit-increas...
Another option is a "solo" 401k account but there's more paperwork involved.
Roth IRA/401k are post-tax investments, and thus not tax deductible. And the income they produce within the IRA/401k is not taxed upon withdrawal.
Ergo, traditional IRAs are more complicated because you have to account for the deduction in the current year, and you have to account for income tax (as well as FICA by the way) upon withdrawal, plus there are mandatory distribution rules based on your age. The Roth IRA are less complicated, no deduction claimed therefore no deduction to prove in the current year, and no taxes to compute on withdrawal, with no mandatory distributions.
The big exception is if you are lower income you might be eligible for the Saver’s Credit for the current tax year based on your Roth contributions.