Changing Roth IRA Contribution to a Deductible IRA
We have a client that since their sons have been in college, have been able to waive the tuition due to his veteran’s benefits. The rule is that the student’s adjusted gross income must be less than the national poverty limit. Each year, that has been the case. Until this year for one of his sons.
The national poverty level for a single person for tax year 2010 is $11,369. His son’s adjusted gross income for 2010 was $16,058.
Here’s my question. Is there a way to convert his $5,000 Roth IRA contribution for 2010 from a Roth contribution to a deductible traditional IRA contribution for 2010, and if so, would that be subtracted from the adjusted gross income for 2010? If so, that $11,058 would put him beneath the national poverty level, and he would be eligible for the tuition waiver. He could then file an amended return for 2010.
Any help or suggestions would be appreciated.
Ted
Permalink Submitted by Alan Spross on Thu, 2011-08-04 00:47
Good thinking. It should work.
If the son’s return was filed by 4/18 or an extension requested, he can ask to have the 2010 contribution recharacterized as a TIRA contribution and can then amend his return to take the deduction to reduce his AGI to 11,058. The deadline to complete the recharacterized contribution is 10/17/2011.
Just be sure the tuition waiver uses basic AGI and not some modified AGI figure what would require the TIRA deduction to be added back to the AGI.