@dmertz wrote:
Even though the traditional IRA contribution is not an excess contribution and is not subject to penalty, your wife still has the option to remove the contribution (although that generally would not make sense if converting to Roth makes sense).
I didn't mention that because the taxpayer is clearly thinking of retirement accounts.
The spouse could remove all contributions before the end of the year, and just invest them someplace else. The investment might earn interest and dividends, which are taxable yearly, and capital gains when sold, which are taxable in the year sold.
But a Roth IRA would be entirely tax-free on withdrawal, you just can't withdraw right away.
I don't think a recharacterization to Roth contributions would be allowed here since the income will be too high for a direct Roth contribution. But the backdoor Roth is allowed.
