Choose Whether Deductible

Submitted by IRAQuestion5 on Mon, 2023-04-03 16:43

Hello-

Client made a Traditional IRA contribution in 2021. She did not take the deduction on her tax return even though she was eligible to.

If we want to convert that IRA to a Roth now, can I include that contribution as basis nondeductible contribution as opposed to going back and amending 2021 to take the deduction and then including it in income when she converts this year? Or do you have to take a deduction for a Traditional IRA contribution if otherwise eligible?

Thank you!



Submitted by Alan - IRA critic on Mon, 2023-04-03 19:01

Taking the deduction is optional, but the taxation of conversions applies the basis over all TIRA accounts, not just the one converted. Client does have the choice to amend the 2021 return to take the deduction if desired, but that could affect any 2022 IRA conversion or distribution as well, so this choice has various implications for 2021, 2022 and 2023.

Submitted by David Mertz on Mon, 2023-04-03 20:23

It would probably be a little more accurate to say that treating an otherwise deductible contribution as nondeductible is an option, with considering it to be a deductible contribution being the default.  A taxpayer always has the option to treat a traditional IRA contribution as nondeductible, but as a nondeductible traditional IRA contribution for 2021 it was required to have been be reported on 2021 Form 8606 line 1.

Submitted by IRAQuestion5 on Tue, 2023-04-04 15:04

Okay, thank you!

Submitted by IRAQuestion5 on Tue, 2023-04-04 15:04

Okay, thank you!

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