Contributed to IRA 6k but found out that I am not getting Tax benefit
Contributed to IRA 6k one week back, but while filing Tax I found out that I am not getting Tax benefit. Can I withdraw 6k from IRA account?
Is there any penalty for with drawing? Or is it ok to leave 6k in IRA?
Permalink Submitted by Alan - IRA critic on Sun, 2022-04-17 22:22
Yes, you can request a return of this specific contribution, whether for 2021 or 2022. The custodian will determine the investment gain or loss and distribute to you the net amount. Any small gain you receive will be taxable and subject to penalty on your 2022 return.
Not clear what tax benefit you are looking for, a current tax benefit or a future tax benefit. If you are referring to an IRA deduction and your income is too high for the deduction, you have other options in addition to a return of the contribution. For example, you could recharacterize the contribution as a Roth contribution if your income is not too high, or perhaps do a back door Roth conversion if you do not have any other non Roth IRA balance.
Permalink Submitted by srinath veb on Sun, 2022-04-17 22:52
Thank you so much Sir (@Alan-iracritic).The contribution i did was for 2021 and wanted to take advantage of tax deduction by contrinuting to IRA. Since ourincome wasover $210k, we cannotavailtax deduction. As mentioned by you, i will call my IRA accout to transfer that $6k to new Roth IRA account.
Permalink Submitted by srinath veb on Sun, 2022-04-17 22:52
Thank you so much Sir (@Alan-iracritic).The contribution i did was for 2021 and wanted to take advantage of tax deduction by contrinuting to IRA. Since ourincome wasover $210k, we cannotavailtax deduction. As mentioned by you, i will call my IRA accout to transfer that $6k to new Roth IRA account.
Permalink Submitted by Alan - IRA critic on Sun, 2022-04-17 23:47
A Roth contribution also has income limits subject to the definition of modified AGI. The 2021 MAGI phaseout range for regular Roth contributions is 198k-208k. You are just over the upper end pending determination of your actual MAGI, but unless you did a Roth conversion, your income is too high. As such, if you recharacterized the contribution as a Roth contribution, you would create an excess Roth contribution which you would have to remove.
Possible Plan B. If you do not already have a non Roth IRA, you could just leave the non deductible contribution alone and convert it to a Roth IRA tax free. This is referred to as a back door Roth, because it gets you around the income limits. If you DO have a pre tax IRA, you should probably just request the contribution be returned since converting it would produce an additional tax bill for the conversion.
Permalink Submitted by srinath veb on Mon, 2022-04-18 18:48
Since I my contribution to IRA was non tax deductible, i tried back door and my broker says, its toolate. Only option left is withdraw. Should I withdraw IRA contribution as “Excess contribution” or “Premature”? And should i select “Don not deduct federal orstatetax” ?
Permalink Submitted by Alan - IRA critic on Mon, 2022-04-18 19:02
You already made the non deductible contribution, and now you can convert it to Roth anytime. Broker apparently did not understand the question. As indicated earlier, the key is whether you have a pre tax balance in any IRA. If you do, then the back door conversion will be mostly taxable and not usually beneficial. If not the conversion will be tax free. You do not have to remove the contribution because it is not an excess contribution, but you can remove it if you do not want to track non deductible IRA basis.