non deductable IRA contributions

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Subject Author Date non deductable IRA contributions Gil Faver 10-17-2008  Re: non deductable IRA contributions joetaxpayer 10-17-2008  Re: non deductable IRA contributions Gil Faver 10-17-2008  Re: non deductable IRA contributions Arthur Kamlet 10-17-2008  Re: non deductable IRA contributions Mark Bole 10-17-2008  Re: non deductable IRA contributions joetaxpayer 10-17-2008  Re: non deductable IRA contributions Gil Faver 10-17-2008
Posted by Gil Faver on October 17, 2008, 5:05 pm Please log in for more thread options a taxpayer has a high income, let's say $400k AGI. Can he make non-deductible contributions to a traditional IRA? If so, he must deal with form 8606, as noted in other recent threads. If he makes a withdrawal before the magic age (I forget the age, but this guy is in his 50s), are their penalties applicable, and must the withdrawal be pro-rated between the deductible contributions (made earlier, when he was not as well off) and the non-deductible contributions? I guess these details are soliciting the answer to this broader question: are there meaningful tax advantages to be had by a high AGI guy via IRAs? Not familiar with Roths, I don't even know the questions to ask in a similar vein for this guy. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by joetaxpayer on October 17, 2008, 5:27 pm Please log in for more thread options Gil Faver wrote: > a taxpayer has a high income, let's say $400k AGI. > > Can he make non-deductible contributions to a traditional IRA? If so, he > must deal with form 8606, as noted in other recent threads. If he makes a > withdrawal before the magic age (I forget the age, but this guy is in his > 50s), are their penalties applicable, and must the withdrawal be pro-rated > between the deductible contributions (made earlier, when he was not as well > off) and the non-deductible contributions? > > I guess these details are soliciting the answer to this broader question: > are there meaningful tax advantages to be had by a high AGI guy via IRAs? > > Not familiar with Roths, I don't even know the questions to ask in a similar > vein for this guy. Regardless of income, if he has no retirement account at work, he can take the deduction. I'll assume he does have a 401(k), so it's not deductible. Yes, he can make the non-deductible contribution to the IRA. As someone one corrected me, your guy has only one IRA, regardless of the number of accounts they are in. Non-deducted deposits are tracked via 8606 as you note. Any withdrawal (or Roth conversion, for that matter) is pro-rated between pre and post tax deposits. The obvious advantage is the tax deferral on the growth. A potential advantage comes in 2010, maybe, when we might be able to convert, regardless of income, to a Roth IRA. One trick (legal, of course) is to roll all pretax funds into the 401(k) account, so only post tax money is available for Roth conversion, and no tax due. Did I cover your question? Miss anything? Joe -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Gil Faver on October 17, 2008, 6:34 pm Please log in for more thread options > Gil Faver wrote: >> a taxpayer has a high income, let's say $400k AGI. >> >> Can he make non-deductible contributions to a traditional IRA? If so, he >> must deal with form 8606, as noted in other recent threads. If he makes >> a withdrawal before the magic age (I forget the age, but this guy is in >> his 50s), are their penalties applicable, and must the withdrawal be >> pro-rated between the deductible contributions (made earlier, when he was >> not as well off) and the non-deductible contributions? >> >> I guess these details are soliciting the answer to this broader question: >> are there meaningful tax advantages to be had by a high AGI guy via IRAs? >> >> Not familiar with Roths, I don't even know the questions to ask in a >> similar vein for this guy. > > Regardless of income, if he has no retirement account at work, he can take > the deduction. I'll assume he does have a 401(k), so it's not deductible. > > Yes, he can make the non-deductible contribution to the IRA. > > As someone one corrected me, your guy has only one IRA, regardless of the > number of accounts they are in. Non-deducted deposits are tracked via 8606 > as you note. Any withdrawal (or Roth conversion, for that matter) is > pro-rated between pre and post tax deposits. > > The obvious advantage is the tax deferral on the growth. A potential > advantage comes in 2010, maybe, when we might be able to convert, > regardless of income, to a Roth IRA. One trick (legal, of course) is to > roll all pretax funds into the 401(k) account, so only post tax money is > available for Roth conversion, and no tax due. Did I cover your question? > Miss anything? > > Joe a couple of points. first, he has no earned income, so he cannot take the deduction. Second, your point about only having one traditional IRA regardless of the number of accounts is a good one. And due to his AGI, he is precluded from a Roth IRA. So, I guess he can put money into a traditional IRA, nondeductibly. Will he be penalized for early withdrawal, even to the proportion of his nondeductible contributions? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Arthur Kamlet on October 17, 2008, 6:43 pm Please log in for more thread options > >> Gil Faver wrote: >>> a taxpayer has a high income, let's say $400k AGI. >>> >>> Can he make non-deductible contributions to a traditional IRA? If so, he >>> must deal with form 8606, as noted in other recent threads. If he makes >>> a withdrawal before the magic age (I forget the age, but this guy is in >>> his 50s), are their penalties applicable, and must the withdrawal be >>> pro-rated between the deductible contributions (made earlier, when he was >>> not as well off) and the non-deductible contributions? >>> >>> I guess these details are soliciting the answer to this broader question: >>> are there meaningful tax advantages to be had by a high AGI guy via IRAs? >>> >>> Not familiar with Roths, I don't even know the questions to ask in a >>> similar vein for this guy. >> >> Regardless of income, if he has no retirement account at work, he can take >> the deduction. I'll assume he does have a 401(k), so it's not deductible. >> >> Yes, he can make the non-deductible contribution to the IRA. >> >> As someone one corrected me, your guy has only one IRA, regardless of the >> number of accounts they are in. Non-deducted deposits are tracked via 8606 >> as you note. Any withdrawal (or Roth conversion, for that matter) is >> pro-rated between pre and post tax deposits. >> >> The obvious advantage is the tax deferral on the growth. A potential >> advantage comes in 2010, maybe, when we might be able to convert, >> regardless of income, to a Roth IRA. One trick (legal, of course) is to >> roll all pretax funds into the 401(k) account, so only post tax money is >> available for Roth conversion, and no tax due. Did I cover your question? >> Miss anything? >> >> Joe > >a couple of points. first, he has no earned income, so he cannot take the >deduction. Ah, additional and quite critical information. Best to include it in original post. In order to contribute to either a Roth or a traditional IRA, you must have at least that much Taxable Compensation. Taxable Compensation includes wages, self employment, certain farming and fishing income, bonuses, tips, severance pay and, for IRAs, it also includes alimony income. It does not include interet, dividends, capital gains, gambling winnings, rental income, social secuity, IRA distributions or pensions. So if there is no Taxable Compensation there is no allowed IRA contribution. > Second, your point about only having one traditional IRA >regardless of the number of accounts is a good one. And due to his AGI, he >is precluded from a Roth IRA. > >So, I guess he can put money into a traditional IRA, nondeductibly. > >Will he be penalized for early withdrawal, even to the proportion of his >nondeductible contributions? N/A -- ArtKamlet at a o l dot c o m Columbus OH K2PZH -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on October 17, 2008, 9:54 pm Please log in for more thread options Arthur Kamlet wrote: [...] >> a couple of points. first, he has no earned income, so he cannot take the >> deduction. > Ah, additional and quite critical information. Best to include it > in original post. > In order to contribute to either a Roth or a traditional IRA, > you must have at least that much Taxable Compensation. [...] > So if there is no Taxable Compensation there is no allowed IRA > contribution. There is the exception of the IRA contribution allowed for the spouse with no earned income of their own, based on the other spouse's earned income, but it would still probably be non-deductible in this case due to AGI. > I guess these details are soliciting the answer to this broader question: > are there meaningful tax advantages to be had by a high AGI guy via IRAs? No, not really, in my opinion. Because of the special rules coming up about conversions from non-deductible Traditional IRA's to Roth regardless of AGI, you could tuck away maybe an extra $5 or $10K into a Roth, but that's about it. -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted IRA Contribution Deductable? January 31, 2009, 10:07 pm Canada Taxes Paid Deductable? March 30, 2007, 3:37 am Corporate Medical Expenses Deductable? April 30, 2007, 11:22 am Medical School visit and interview, deductable ?? 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