Non deductable IRA Contributions to wrong account
It has come to my attention that in 2008 and 2009 my non-deductable IRA contributions of $6000 each were put into my IRA account that has deductable contributions in it. I have another account to which these two contributions should have been deposited. I would like to keep the accounts separate. Is there a way to correct this error…and move the two contributions to the proper account?
Thanks you.
Skeet Fischer
Permalink Submitted by Al Fry on Thu, 2010-01-14 21:58
No, because of the “cream in the coffee” rule. From a tax standpoint, it would not have made any difference anyway, since the IRS considers both of your IRAs as one.
Permalink Submitted by Helen Fischer on Thu, 2010-01-14 23:21
So…Leave the contributions in the wrong account…How do you treat withdrawals when there are taxable and non taxabl contributions in the account. Or does one just pay taxes two times on those contributions when they are withdrawn?
Thanks,
Skeet Fischer
Permalink Submitted by Alan Spross on Fri, 2010-01-15 02:52
No, there is never double taxation as long as you file Form 8606 when you make non deductible contributions. But as Al indicated, it makes absolutely no difference which account you make these contributions to because all your accounts are considered as one combined account for tax purposes. It also makes no difference which of your IRA accounts is used to fund the distribution or Roth conversion. Therefore, there is NO wrong account for making contributions for tax purposes.
For example assume you have an IRA with 50,000 of value, all pre tax. Another IRA has 20,000 of which 10,000 came from non deductible contributions. If you want to take a distribution of 10,000 from EITHER account, the taxable amount is 60,000/70,000 and the tax free portion is 10,000/70,000. The same is true for a Roth conversion of 10,000 taken from either account. The pre tax and after tax amounts for all account are added together to get this ratio.
Your 10,000 of non deductible contributions is NOT assigned to any particular account. It is simply a floating total amount of your non deductible contributions to all your traditional, SEP or SIMPLE IRA accounts. This is what Al meant by the “cream in the coffee” rule.