Non deductible contrib to TIRA but MAGI to high for Roth.
Hello,
A client made an earlier deposit into her TIRA only to discover she made too much money. Her MAGI is too high for a Roth conversion. They obviously don’t want the burden to calculate the exemption amount when they withdraw funds.
The fund company stated to establish a new TIRA and transfer the 6500. Is this the best way? Am I missing something?
Thanks in advance for any insight,
Mike
Permalink Submitted by Alan - IRA critic on Tue, 2015-04-07 16:30
Client’s income may be too high to deduct the contribution, but perhaps it is not too high to recharacterize the contribution as a Roth IRA contribution. If MAGI is also too high for a Roth contribution, then the only remaining option is to keep the contribution as a non deductible TIRA contribution. There is no longer an MAGI limit to convert, but the conversion will be mostly taxable since she apparently has a current TIRA with no basis other then the current contribution. For example, if her prior TIRA value is 93,500 and she adds 6500 as a non deductible contribution, a conversion of 6500 would have a taxable amount of 6078 and would have to track the remaining basis on Form 8606 indefinitely. Finally, if none of these options are acceptable she can request a return of contribution and pay taxes only on the earnings generated on the contribution to date with 10% penalty on the earnings unless she is 59.5.
Permalink Submitted by Mike LaRose on Wed, 2015-04-08 23:35
Thanks for the explanation.