401(k) / Non taxable IRA / ROTH
Couple with one spouse making contributions to an employer sponsored retirement plan 403(b).
Other spouse no retirement plan at work and made contributions to an IRA in 2018 ($3,600) and YTD $2,700. Accountant was not aware of the IRA.
MAGI 2018 $202,798. 2019 MAGI will be higher.
Spouse who was contributing to the IRA, his employer is now offering a 401(k) plan and he suspended contributions to the IRA. He has no other IRA’s, his wife has a very small one about $500, the bulk of her assets are in her 403(b).
Looking for insight/confirmation/suggestions and how this may work.
1. Convert his IRA to a ROTH IRA.
2. There is no penalty since he contributed to an IRA this year (non-deductible) when he contributes to his 401(k).
3. Have accountant record/file for tax purposes non-deductible IRA contributions for 2018 and 2019.
4. He will pay tax on the converted amount of the non-deductible IRA above his cost basis.
Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2019-07-19 18:47
Yes, that would work. If the 2018 return has already been filed, he can file a stand alone 2018 Form 8606 to declare the contribution non deductible. The 2019 8606 will pick up the 2018 contribution and show it on line 2. He cannot recharacterize these contributions as regular Roth contributions since MAGI is too high for regular Roth contributions, so the conversion is the next best option. The conversion along with the 2019 ND contribution will be reported on the 2019 8606.
Permalink Submitted by David Berdow on Sat, 2019-07-20 12:34
Thank you.