Nondeductible IRA, can you make?

[KJ Judd]

Client has maxed out a SEP plan and put $5k into IRA for 2006. (She's over 50.) Income is $200+k. Can the IRA contribution be considered a nondeductible IRA if I fill out the required form with the tax return?

In otherwords, is there no income limit or plan participation limit to contribute to a nondeductible IRA? Thanks!

[JoshinNC]

No income limit, cannot exceed $4000 ($5000 if over 50)

Your client can do this for 2006, 2007, 2008 and 2009 and then convert to a ROTH in 2010, irregardless of income. And, they can split the ensuing tax bill over both 2010 and 2011.

Who says the Republicans don't know how to govern?

[KJ Judd]

THANKS! At first client was telling me it was a traditional IRA and she had taken a deduction for it from 1999 to present even though covered by retirement plan. (Former tax preparer had already been discovered on the corporate return & kids' returns to have some "issues".) Only as I was wrapping up her appt. did I see it was a nondeductible IRA.

She'll be relieved when I call her.

[ChEAr$]

deductible or not,

THANKS! At first client was telling me it was a traditional IRA and she had taken a deduction for it from 1999 to present even though covered by retirement plan. (Former tax preparer had already been discovered on the corporate return & kids' returns to have some "issues".) Only as I was wrapping up her appt. did I see it was a nondeductible IRA.

She'll be relieved when I call her.

Why won't that large income disqualify any contributions to any IRA since she's
covered under a plan?

[JoshinNC]

See Pub 590, pg 8

Why won't that large income disqualify any contributions to any IRA since she's
covered under a plan?

"You can have an IRA whether or not you are covered by any other retirment plan. However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer retirement plan."

[CarolToppCPA]

Separate IRA accounts

Her IRA contribution must be nondeductible. She made too much $$ for it to be deductible. I HOPE she put this non-deductible IRA contribution in a separate IRA account from the deductible/traditional IRA, or it's a mess to figure out the basis when she makes a withdrawl. The deductible and non-deductible contributions get mixed together. Messy to calculate what should be taxed and what is tax-free.

I have three IRAs myself: Roth, Traditional (rollover from a 401k, so like a deductible IRA) and a nondeductible IRA opened in 2006 because we made too much $$ to be eligible for Roth contributions. We'll probably convert this newest IRA into a Roth in 2010 as JoshinNC suggested.

Carol

[veritas]

It makes no difference

where the nondeductible contribution is made as long as it goes to a traditional IRA.

When the taxpayer withdraws from the traditional IRAs, a portion of each withdrawal will be a return of the nondeductible basis no matter which traditional IRA the funds come from.

Hope this makes sense.