Non Deductible IRA Contribution and not in a Retirement Plan
I have a client who for the past 5 years we have done a backdoor Roth conversion using non-deductible contributions to his IRA since he was in a retirement plan and his income exceeded the limits to make a regular Roth contribution. This year he was not eligible to participate in his employers plan and the retirement plan box is not checked on his W-2 and his income still exceeds that MAGI limits to make a regular Roth contribution. Am I correct in assuming that since the client is no longer in a retirement plan that he can only make deductible IRA contributions and not non-deductible due to him not being in a retirement plan? I feel that my only option is to make the deductible contribution for 2024 and convert it to a Roth in 2025, receiving a tax benefit for 2024 and paying the tax back in 2025 when it is converted to a Roth with no basis.
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-08 14:24
If the client is married filing jointly, the spouse’s income and retirement plan participation will affect the ability of client to deduct the contribution.
But even if client can deduct the contribution, that does not mean he has to. He could report a ND contribution as in prior years that would not reduce taxable income in 2024, nor would it result in taxable income for the conversion in 2025. Doing this would also avoid a taxable conversion and a 5 year holding period for the conversion during which a distribution of the taxable converted amount from the Roth IRA would result in a 10% penalty (unless client is over 59.5).
Permalink Submitted by Tom Burns on Tue, 2025-04-08 14:41
Thanks Alan