Claiming portion of traditional IRA as non-deductible IRA
Hello,
I have a client who has been contributing to a traditional IRA taking tax deductions up to 2019 tax year. She also just made 2020 contribution to the same account. However, she has a 401k plan effective this year and her income is too high for tax deduction.
Can she claim 2020 contribution portion only as non-deductible?
Permalink Submitted by Alan - IRA critic on Wed, 2020-10-28 19:29
Yes, any TIRA contribution can be reported as non deductible, and that has always been the case. In this case, she does not qualify for the deduction, but even if she did she could report the contribution as non deductible. However, a non deductible contribution is inferior to a Roth IRA Contribution. Roth contributions have a much higher income threshold than the deduction limits for a TIRA. If her modified AGI is not too high for a Roth contribution, she should recharacterize the 2020 TIRA contribution as a Roth IRA contribution. That would also avoid the pro rata issues with Form 8606 if 2020 is her first year making a ND TIRA contribution.
Permalink Submitted by Keith Kim on Thu, 2020-10-29 10:09
Thank you, first of all. What would be the difference between “recharacterizing” and “converting” to roth?Pro rata rule was what she’s concerend with as well.