Contributing to an individual retirement account (IRA) is an effective way to save for retirement, but it is important to keep track of how much you contribute and how much your account grows each year. You do not need to report the value of your IRA when you do your taxes, but you do need to report the amount you contributed for the previous tax year.
One of the chief benefits of contributing to an IRA is the tax-deferred growth that account can provide. When you choose a traditional IRA, you can take an upfront tax deduction equal to the amount of your annual contribution. If you choose a Roth IRA, you give up that tax deduction, but you get tax-free withdrawals in retirement. Either way, the money grows and compounds on a tax-deferred basis all the way out to retirement.
If you contribute money to a traditional IRA, you are entitled to a tax deduction for the amount you put in. You do not have to report the value of the IRA account, but you should report the amount of your annual contribution. If you contribute to a Roth IRA, you cannot take a tax deduction, but it is still important to keep track of those annual contributions for your own records.
Even though you do not have to report the fair market value of your IRA to the IRS each year, you should track the growth of that account. Tracking the growth of your IRA account makes it easier to see how you are doing and determine whether or not you are still on track for a comfortable retirement. If you have online access to your IRA account, you can download those annual statements any time you need one.
You should receive an annual statement from the administrator of your IRA account each year. While you do not have to report the fair market value shown on that statement when you do your taxes, it is a good idea to keep each of the statements you receive. Keeping those statements makes it easy to track exactly how much you have contributed to your IRA through the years, and how much those contributions have grown.
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