non-deductible IRA & employer sponsored retirement plan

Submitted by Keith Kim on Thu, 2018-07-12 20:24

Hello,
I have a client who has a 401K through his company and may end up earning more than the maximum household threshold income level for spousal IRA contribution also. I believe the threshold is the same as roth ira eligibility?
Can the couple at least contribute to a non-deductible IRA and change it to Roth?
if so, does he have to convert it in the same year?
Also in practice, can one just contribute to an IRA in the beginning of the year and later decide whether to report it as deductible or non deductible? i’m planning on suggesting him to put early on in the year if affordable as long as we can report it either way later.
Thank you so much!



Submitted by Alan - IRA critic on Thu, 2018-07-12 21:58

  • Yes, the MAGI limit for a non participating spouse to deduct a spousal TIRA contribution is the same as for Roth contributions. A non deductible contribution can still be made, but when converted the entire balance of that spouse’s non Roth IRAs must be included in the calculation of the conversion tax, so this works well only if the spouse does not already have a TIRA balance. If no balance, the conversion should be done immediately after making the non deductible spousal contribution, but can be done anytime.
  • Yes, contribution can be made early in the year. The decision on the deduction can be made later, or the contribution can be removed with earnings up to the extended due date or it could be recharacterized as a Roth contribution if the taxpayer is eligible for a regular Roth contribution.

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