IRA contribution non-deduictible

[S T]

Taxpayer's - husband does not have a retirement plan through employer - Spouse has a 401K through employer

Husband would qualify for a traditional IRA contribution ---- EXCEPT - the combined income of husband and wife disqualifies,
We are making a $ 3000 "non deductible" contribution to Husband's Traditional IRA - and form 8606 has been completed

Husband is also disqualified from a Roth IRA due to the income limitations for 2016.

Question - In 2017 can the husband make a transfer from the non-deductible IRA of $ 3000 to a Roth Ira in 2017?

Thanks

Sandy

[kathyc2]

Taxpayer's - husband does not have a retirement plan through employer - Spouse has a 401K through employer

Husband would qualify for a traditional IRA contribution ---- EXCEPT - the combined income of husband and wife disqualifies,
We are making a $ 3000 "non deductible" contribution to Husband's Traditional IRA - and form 8606 has been completed

Husband is also disqualified from a Roth IRA due to the income limitations for 2016.

Question - In 2017 can the husband make a transfer from the non-deductible IRA of $ 3000 to a Roth Ira in 2017?

Thanks

Sandy

Yes, but if he has other IRA's the tax free amount will need to be prorated. For example, he has 3K in the non-deductible but if the total IRA's he has are 30K, then 90% of the 3K conversion to Roth is taxable.

[Burke]

Taxpayer's - husband does not have a retirement plan through employer - Spouse has a 401K through employer.

Sandy

You mean AGI exceeds $194K? See TTB 13-12.

[S T]

Yes AGI s over limit for either a Deductible IRA or a ROTH

Ira Investment person wants to put into a ROTH - but taxpayer cannot, so needed to make a non-deductible Traditional IRA with form 8606 - then was thinking in 2017 we could convert to a ROTH the $ 3,000 non-deductible contribution for 2016 - not so sure of those regulations.

[FEDUKE404]

Form 8606

Just remember, Form 8606 will haunt you forever!

(Client made non-deductible IRA contributions in 90's and it still is a pain, each year, to come up with the numbers for Part I of Form 8606, especially line 6. (Line 2, fortunately, is generally handled pretty well by tax software year-to-year data files for the client.)

But the form is a boon to billable hours!

FE

[kathyc2]

Yes AGI s over limit for either a Deductible IRA or a ROTH

Ira Investment person wants to put into a ROTH - but taxpayer cannot, so needed to make a non-deductible Traditional IRA with form 8606 - then was thinking in 2017 we could convert to a ROTH the $ 3,000 non-deductible contribution for 2016 - not so sure of those regulations.

Unless you can do a back-door Roth, I don't see the point of a non-deductible IRA. Yes, you are deferring tax on earnings until some future date, but you are also changing it to regular tax rates rather then LTCG or qualified dividend rates if you would have just invested in a non-qualified investment vehicle.

[Roland Slugg]

Ira Investment person wants to put into a ROTH.

Aahhh, we get to the motivation behind this foolish idea ... the "investment adviser's" commission.

As I have said to many clients over many years, most financial planners don't recommend investments that are good for YOU, they recommend investments that are good for THEM. This is an excellent case in point.

Years ago when interest rates were much higher than they are now, I thought making non-deductible IRA contributions was a highly questionable move, but to do so now is downright absurd. The upside is minuscule, and the many negatives are significant.

I even have reservations regarding the wisdom of making tax-deductible IRA contributions. Why? Because most of the investments where IRA funds are placed are the kind that pay qualified dividends, capital gains, appreciate in value ... or all three. Yet the funds that come out of a person's IRA are all taxed as ordinary income. Thus, the IRA owner is turning tax-favored income into ordinary income ... exactly the opposite of sound financial and tax planning. Kathyc2 makes this same point in another post above ... a point not often made where the pros and cons of IRAs are discussed.

[ttbtaxes]

A back-door Roth ONLY works if the taxpayer has no traditional IRA in any other account. Otherwise, upon conversion from the non-deductible IRA to the Roth, some of the converted amount will become taxable.

[kathyc2]

A back-door Roth ONLY works if the taxpayer has no traditional IRA in any other account. Otherwise, upon conversion from the non-deductible IRA to the Roth, some of the converted amount will become taxable.

Supposedly, another way to accomplish it is to first more all of your deductible IRA's into your 401K. Then you would have no deductible IRA's and can backdoor.

[S T]

Burke had a thread on the same thing that I was thinking http://forum.thetaxbook.com/showthre...aditional+roth

Make a non-deductible IRA - file form 8606 and then convert the $ 3000 non deductible to a Roth

Unfornate that the taxpayer is limited by AGI and husband has no retirement plan and spouse has a retirement plan.

[kathyc2]

Burke had a thread on the same thing that I was thinking http://forum.thetaxbook.com/showthre...aditional+roth

Make a non-deductible IRA - file form 8606 and then convert the $ 3000 non deductible to a Roth

Unfornate that the taxpayer is limited by AGI and husband has no retirement plan and spouse has a retirement plan.

Does client have any non-Roth IRA's besides the 3K non-deductible one?

[S T]

Client only has the Traditional IRA which $ 3,000 has been contributed for 2016 as a "non-deductible" IRA on for 8606

[Lion]

But, if she has any deductible Traditional IRAs from prior years, that's when you need to prorate upon conversion to a Roth.

[kathyc2]

Client only has the Traditional IRA which $ 3,000 has been contributed for 2016 as a "non-deductible" IRA on for 8606

So, he only has a total of 3K in his Traditional? In that case he can convert without tax consequence. The 1099R for 2017 will show it as taxable, then you prepare the 8606 for 17 showing basis and making it non-taxable.

[S T]

Thanks

$3K non deductible - will move to a Roth IRA and complete form 8606.