Pension Plan and IRA
If a client is a participant in a Pension Plan but still contributed to an IRA in 2010 what needs to be done to correct ? He did not deduct this on his taxes. Are there penalties? Thank you
If a client is a participant in a Pension Plan but still contributed to an IRA in 2010 what needs to be done to correct ? He did not deduct this on his taxes. Are there penalties? Thank you
Permalink Submitted by Jose Morales on Tue, 2011-04-12 15:53
The only requirements for making a Traditional IRA contribution are that it be in cash, that the individual has earned income, and that the individual has not reached the year in which they attain the age of 70 1/2. Being an active participant in an employer sponsored retirement plan would only potentially restrict the ability of the individual to deduct the contribution when they file their taxes. Now if the client decides that they do not care to make a contribution to an IRA if they do not get the benefit of a deduction they can still remove the funds as an excess contribution, but they are under no requirement to do so.
Permalink Submitted by Lewis Young on Tue, 2011-04-12 16:05
So since he did not deduct the contribution he can keep the monies in the IRA and then keep track of his basis for a non dedcutible contribution going forward. Does he need to file a tax form 8606 showing he made the non-deductible contribution?
Permalink Submitted by Jose Morales on Tue, 2011-04-12 16:12
yes, he will need to file form 8606 and keep track of the non-deductible basis in his IRA. If this is the only IRA he has contributed to and the earnings aren’t that great, he could also consider converting this to a Roth IRA. Only the earnings would be taxable. If he has made other IRA contributions in the past then only a pro-rata basis, based on his entire IRA holdings, would not be subject to tax in a conversion.
Permalink Submitted by Lewis Young on Tue, 2011-04-12 16:22
Last question. can he convert to a Roth if his Income is over $160,000?
Permalink Submitted by Alan Spross on Tue, 2011-04-12 17:28
Yes, there is no longer an income limit for Roth conversions. The conversion income limits ended 12/31/2009.