Incorrectly Marked As Covered By Retirement Plan
Hello-
Client with high income made a small IRA contribution for tax year 2021 ($850). They weren’t covered by a retirement plan at work but it was treated as though they were. I am not sure at this time if the W2 (former employer) indicated they were or if the tax preparer just marked that they were. Therefore the contribution was not deducted but listed as a non-deductible contribution on 8606.
Can we convert it to a Roth like a Backdoor Roth (they will have no IRAs at end of year) or since it was supposed to be deducted in 2021 would we have to include it in income when doing the conversion?
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2022-05-18 14:53
It would be better to look into whether the W-2 was correct or not, or the same issue could pop up next year. Note that if client is covered by a DB plan at work, the box should be checked. Client is always able to make a ND contribution if they have earned income, so if there is no non Roth IRA balance other than this 850, client could simply convert the entire TIRA balance and the only tax would be on any gains. Good chance there are no gains at this point.