Ira and 401k

[FEDUKE404]

Why would this haunt you every year? What's the big deal? Balance on 12/31/xx and 1099-R and done.

Take it easy, bud.

I can handle it, but getting the necessary information FROM MY CLIENT each year is like pulling teeth.
It's not as if I don't ask the same question each and every year. . .

(But, thank you for reminding me about the 12/31/yyyy balance rules. I'll have to make a note of that.)

[rbynaker]

Why would this haunt you every year? What's the big deal? Balance on 12/31/xx and 1099-R and done.

Yeah, the haunting doesn't happen until after the IRA owner dies. Then the beneficiaries are haunted by not knowing that there's basis and paying tax twice on the money.

[New York Enrolled Agent]

Form 8606 continues to haunt us each year.
.

Why would this haunt you every year? What's the big deal? Balance on 12/31/xx and 1099-R and done.

[FEDUKE404]

True. I personally strongly discourage people from putting money in a non deductible Traditional.

1) The vast majority of taxpayers don't understand what it means.
2) Years down the road when they take it out they will either forget or have lost the documentation for it.
3) Too many tax preparers don't understand how to calculate the taxable portion on distribution.

AGREE!!!
I have a client who, a number of years ago, put funds into a non-deductible Traditional IRA. Said client is now in the world of RMDs.
Form 8606 continues to haunt us each year.
To add insult to injury, IIRC there was/is a stiff preparer penalty if a required Form 8606 is not prepared annually.

As for this discussion, having the "retirement plan" box checked on ANY W2 changes the tilt of the IRA table.

[BOB W]

Thanks RapRob. and Kathy2. and NYEA. and RWG

[Rapid Robert]

To Bob W: the UltraTax worksheet will correctly calculate the phaseout range for how much is deductible and how much is not;

[kathyc2]

MFJ with $110,000

Then he is in the phase out range, which is something you left out. At 110K MFJ over age 50 he can put 5,250 into a deductible traditional IRA.

If wife is not covered by retirement plan at work, she can contribute 7K (over age 50) to a deductible traditional IRA.

[BOB W]

MFJ with $110,000

[kathyc2]

My software is Ultra Tax. It has a simple worksheet question: Covered by pension? Yes/No If yes, no deductible IRA allowed but a non deductible contribution is allowed.
Are your responses talking about a deductible IRA?

What is filing status and AGI?

[BOB W]

I agree with Kathyc2 on this.
But he also must have at least $7K in 2021 W-2 income to be able to put the 7K into the 2021 IRA.
Your tax software is saying no deductible IRA ? You might want to investigate this a little further.

My software is Ultra Tax. It has a simple worksheet question: Covered by pension? Yes/No If yes, no deductible IRA allowed but a non deductible contribution is allowed.
Are your responses talking about a deductible IRA?

[Rapid Robert]

"discourage people from putting money in a non deductible Traditional."

Please convince all those "back door Roth IRA" fanatics! They'd be better off taking the money and paying the tax on a Roth conversion, assuming they have any Trad. IRA money without basis (and why wouldn't they, at the higher income levels we're talking about? Surely they would have rolled over a 401k to an IRA at least once along the way)

I have basis (not much) in my Trad IRA from before Roth IRAs existed, and being a tax nerd (long before becoming a tax pro) I have a spreadsheet with all IRA contributions and distributions going back to 1985. Good tax software will also maintain IRS basis worksheets (including separate Roth contribution and conversion bases) every year.

[kathyc2]

Any taxpayer with sufficient compensation can fund an IRA whether or not the taxpayer is covered by a retirement plan.

True. I personally strongly discourage people from putting money in a non deductible Traditional.

1) The vast majority of taxpayers don't understand what it means.
2) Years down the road when they take it out they will either forget or have lost the documentation for it.
3) Too many tax preparers don't understand how to calculate the taxable portion on distribution.

[New York Enrolled Agent]

AGI is fine but W2 shows a pension plan participant and program is saying NO DEDUCTIBLE IRA.

You do realize you changed your question in the original post. Any taxpayer with sufficient compensation can fund an IRA whether or not the taxpayer is covered by a retirement plan.

Since you said AGI is not a problem I suspect you have not entered the information correctly. Any boxes need to be checked?

[RWG1950]

I agree with Kathyc2 on this.
But he also must have at least $7K in 2021 W-2 income to be able to put the 7K into the 2021 IRA.
Your tax software is saying no deductible IRA ? You might want to investigate this a little further.

[BOB W]

AGI is fine but W2 shows a pension plan participant and program is saying NO DEDUCTIBLE IRA.