@shinyonn wrote:
Thanks, appreciate the info!
I did enter the contribution into TurboTax for 2022 and it told me I was ineligible to deduct it due to the 401(k). I will check the 2022 return for form 8606 and amend if it’s not there.
Because of the problem of mixing deductible and non-deductible contributions in a traditional IRA, you need to save a copy of that form 8606 for as long as the mixed contribution exist (up to your entire life, if that's what happens). It is an exception to the rule that you can discard most tax papers after 3 or 7 years.
Very briefly:
Suppose you leave the non-deductible contributions in the IRA and add deductible contributions, plus you will have non-taxable earnings. Let's say that when you retire, the balance is $100,000, of which $6000 was the non-deductible contributions from 2022. You don't want to pay tax on that $6000 when you withdraw money, since you already paid tax. But the only way to document that is to keep copies of all your form 8606s. You can't just withdraw the $6000 tax free. If you withdraw $6000, and 6% of the balance is non-deductible ($6000 out of $100,000) then 6% of the withdrawal is tax free, and you have to keep track of this year over year until your IRAs are zeroed out.
If your only contributions at this time are non-deductible, you can convert them to a Roth IRA. The earnings will be taxed but not the contributions since you didn't take a tax deduction before. Then going forward, your Roth IRA will only have after-tax money and your traditional IRA will only have deductible (pre-tax) money. That will make things much easier in the future.
