Correcting TIRA contribution not deductible due to employer retirement plan
Hello,
Thank you for your help in advance.
Client made a traditional IRA contribution when they already contributed to a company sponsored plan.
Their CPA is requesting that the contribution amount to be corrected by taking it back out.
Is that the best way to handle this situation? if so, who’s responsible for calculating gains/losses associated with that contribution..
Or, can they report it as non-deductible portion and track the basis separately?
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2022-02-14 19:32
If their MAGI is too high for the deduction, there are various options. They could remove it with earnings and the custodian will calculate the earnings, could recharacterize the contribution as a Roth contribution if their MAGI is not too high for a Roth contribution, or they could just report it as non deductible on Form 8606, but they would then be subject to filing an 8606 for all years in which there is a distribution.
Permalink Submitted by Keith Kim on Fri, 2022-02-18 19:40
Thank you! I think recharacterizaion may be the bet bet. In that case, should we still calcuate gains and losses?
Permalink Submitted by Alan - IRA critic on Fri, 2022-02-18 23:49
The IRA custodian will calculate the applicable gain or loss for the recharacterization as a Roth contribution. Remember that client’s MAGI must not be too high to qualify for a Roth contribution or the recharacterization will create an excess Roth contribution.