2024 IRA Contributions (Ineligible due to employer plan coverage)
I had clients make 2024 IRA contributions. Husband made his contribution in July 2024, wife made hers in April 2025 right before the 4/15/25 deadline. They are on extension for their 2024 taxes. The wife failed to tell me she started being covered by a 401k plan in 2024 so she and her husband are not eligible to deduct these contributions. I think the best option is to remove the 2024 contributions (and associated earnings) now, rather than tracking basis. If the husband contributed $8,000 into his IRA for 2024 and by the time the funds are removed later this month, say the earnings were $1,000, so $9,000 total is removed from his IRA, are the $1,000 of earnings taxable on his 2024 tax return or 2025 tax return? What if there were losses on the contributions? I assume no deduction for losses if the IRA contribution is removed.
Permalink Submitted by Alan - IRA critic on Tue, 2025-05-13 14:14
If the removed contribution had gains, the gains are taxable in the year in which the contribution was made, therefore earnings returned on the husband’s contribution will be taxable in 2024. However, any earnings returned on the wife’s contribution will be taxable in 2025 because she made her contribution in 2025.
If there are losses, there will be no gain to report as income, but the loss cannot be deducted.
If a spouse does not have any other IRA balance, that spouse could retain their contribution as non deductible, file Form 8606 and convert it to Roth tax free up to the amount of the ND contribution.