Inadvertent $5k 2018 TIRA contribution
Hi folks,
One of my clients just wired/contributed $5k to her Traditional IRA classified as 2018 contribution. This is not a huge issue as she does not have a 401k and the $ value is under $5500. However, she really intended to make the deposit to a standard brokerage account as part of her quarterly savings plan and then make 2018 IRA contributions later in the year, possibly to a new Roth as her husband has a 401k and they earn in the $150k range AGI.
My question is: Can she withdraw the funds immediately and use IRS Form 5329 to correct the issue when she ultimately files 2018 married / joint taxes?
Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2018-01-17 18:59
She can request a return of contribution with allocated earnings and then re contribute later on if she wants to. Or better yet she can leave the contribution alone and later recharacterize it as a Roth contribution when she is sure that she prefers a Roth contribution to a deductible TIRA contribution. The MAGI thresholds are the same for the non participant spouse with the phaseouts starting at 189k MAGI for either the TIRA deduction or the Roth contribution. Each solution has a different reporting requirement with the least hassle being to simply leave the contribution alone and take the deduction. In other words, her deduction will not be eliminated UNLESS her Roth contribution is also eliminated. If MAGI spikes over 189k her remaining best option then would be a back door Roth, except it sounds like she already has a pre tax TIRA balance and that would make her conversion taxable. She has plenty of time since this is a 2018 contribution, so no need to rush into any decision right now.