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Traditional IRA deductions
Posted on 6/23/19 at 8:45 pm
Posted on 6/23/19 at 8:45 pm
Have an old 401(k) (roughly $22,000) that I converted to a traditional IRA. Began making contributions this year to it, but just realized that I cannot deduct them because I file married jointly and our AGI is more than $123,000. I currently contribute 15% of my salary to my current 401(k). My question is...if I cannot deduct contributions to my traditional IRA, should I stop contributing since I will he taxed on it at retirement? Am I essentially going to be doubled tax? Do I convert it to a Roth and pay the conversion tax now and continue contributing?
Are there any benefits of me keeping it as is and contributing roughly $2-3k/year?
Are there any benefits of me keeping it as is and contributing roughly $2-3k/year?
2
Posted on 6/23/19 at 10:47 pm to Crescent Connection
quote:
My question is...if I cannot deduct contributions to my traditional IRA, should I stop contributing since I will he taxed on it at retirement? Am I essentially going to be doubled tax?
No. You will have "basis" in your IRA and as you take out distributions, a pro-rata amount will be tax-free.
quote:
Do I convert it to a Roth and pay the conversion tax now and continue contributing?
You can do this. A "Backdoor Roth" won't work for you, because now that you have other IRA funds (from your movement from 401K to IRA), you will have to pay some tax, because you will have co-mingled deductible and nondeductible IRA amounts and that's a damn mess with a backdoor.
quote:
Are there any benefits of me keeping it as is and contributing roughly $2-3k/year?
You are still getting tax-deferred growth, and you won't be double taxed. The benefit depends on your entire financial plan.
Posted on 6/24/19 at 6:29 am to Crescent Connection
You need to do a re-characterization of this years contributions into a Roth IRA.
If you don’t do this you will have a “basis” in your IRA where some of the money will come back to you as “return of principal” and not be taxed in retirement. This requires advanced record keeping and tracking by your tax professional.
If you want to convert the whole IRA to a Roth, you still need to recharacterize this years contributions so you can ensure that you aren’t double taxed.
Yes there are benefits for you saving 2-3k extra per year for retirement.
I’d really consider the conversion of the whole amount. I’d check with your CPA to see what your taxes are looking like in December and if it looks like you will be due a refund I’d convert at least enough to knock the refund out.
If you don’t do this you will have a “basis” in your IRA where some of the money will come back to you as “return of principal” and not be taxed in retirement. This requires advanced record keeping and tracking by your tax professional.
If you want to convert the whole IRA to a Roth, you still need to recharacterize this years contributions so you can ensure that you aren’t double taxed.
Yes there are benefits for you saving 2-3k extra per year for retirement.
I’d really consider the conversion of the whole amount. I’d check with your CPA to see what your taxes are looking like in December and if it looks like you will be due a refund I’d convert at least enough to knock the refund out.
This post was edited on 6/24/19 at 6:30 am
Posted on 6/24/19 at 7:10 am to AugustaTiger
Thanks for the replies.
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