Nondeductible IRA contributions
Client wants to contribute nondeductible IRA contributions and then convert them to a Roth IRA. Taxpayer does not have earned income but spouse has about $40,000 in earned income. Can each of them do this?
If they have existing traditional IRA from earlier years, can they avoid any taxable income on the conversion by setting up a new IRA for the nondeductible contribution?
Permalink Submitted by Alan - IRA critic on Tue, 2024-04-09 19:14
With a spousal contribution they can each make max non deductible TIRA contributions. However, for each spouse that has an existing pre tax IRA balance, the conversion will be pro rated using the total IRA balances of all TIRA, SEP, and SIMPLE IRA accounts. Setting up a separate account for the ND contributions does not change that, so there is no benefit from making the ND contributions to a new account. Each spouse’s IRAs are separate, so if one spouse has no pre tax IRA balance, their conversion can be non taxable or mostly non taxable if there are any gains prior to converting.
If the MAGI permits direct Roth contributions, a direct Roth contribution is always more beneficial than a ND TIRA contribution that is converted.