Traditional IRA?

[RayT]

MFJ Client has MAGI of $190k. Client is covered by employer's plan (Simple IRA). Client's spouse has no income, but deposited $4k into a traditional IRA. I believe income exceeds maximum to qualify for an IRA. they have not yet filed 2006 return. Should spouse withdraw IRA deposit before filing deadline, including extension, to avoid penalty? And, report any interest earnings on 2006 and/or 2007 return, as appropriate? Other options? Comments appreciated.

[veritas]

Designate it

as a non-deductible IRA contribution. The earnings are tax deferred and there are no penalties. Plus you get to charge for another form.

[JoshinNC]

and in 2010 they can convert it to a ROTH,

as a non-deductible IRA contribution. The earnings are tax deferred and there are no penalties. Plus you get to charge for another form.

pay tax on the earnings between now and then (over a 2 year period) and then reap tax free growth and tax free withdrawals later.