DanielV01
Expert Alumni

Retirement tax questions

It is how tax law is written.  What you state makes sense, since you didn't have access to a retirement plan where you worked before.  Unfortunately, tax law turns a blind eye to this because your deduction is based on your AGI and not on how much time throughout the year you didn't have access to a retirement plan in the year.

If you have already made the contribution, and your income is low enough to allow you to contribute to a Roth-IRA, you may wish to consider recharacterizing the original contribution to a Roth IRA.  Recharacterization means that the original Traditional IRA contribution just became a Roth IRA contribution, allowing all of the growth to be Roth-IRA growth as well. If you do this by April 15th, the contribution will be considered a Roth IRA contribution for 2018.

But if your income is too high for a direct Roth contribution, you may still turn it into a back-door Roth.  Instead of recharacterizing the contribution, you convert the IRA to a Roth-IRA.  Any growth will be taxable on your tax return next year (a conversion is reported as a taxable event in the calendar year it occurs as compared to the recharacterization, which can be done up until April 15th of the following year), but it will be in a Roth IRA, where all remaining growth is tax-free upon distribution (provided that it is a qualified distribution:  held at least 5 years and after age 59 1//2 or other qualified reason).

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