Appears that individual IRA contribution is not deductible. My wife was on a Simple IRA plan that was terminated early in 2023 after only 3 payroll deductions.

[fdm069-outlook-c]

Her W2 no shows she was covered by a retirement plan for the entire year. Is there anything we can do to make this deductible ?

[dmertz]

No.  Your MAGI being above the threshold combined with the fact that she was covered by a workplace retirement plan for any part of the year makes the traditional IRA contribution nondeductible.

[MinhT1]

If your wife had a Simple IRA plan for 3 months in 2023, she's still considered as Covered by a retirement plan at work for tax year 2023.

If you are filing jointly, her IRA contribution is NOT deductible if your joint Modified AGI is more than $136,000.

See this IRS document.

[fdm069-outlook-c]

IRS documentation regarding Simple IRS plans say they cannot be terminated or amended without reasonable notice and must be continued for the full calendar year, unless they are started in the same year. Her plan was terminated after 6 weeks/3 payroll periods. There were no further matching contributions or deductions made, and she is well below the maximum amount. 

It appears that we are being screwed 3 ways: by her employer, by the IRS, and by our investment/tax advisor.

I have done a what-if on TurboTax and we are paying $1900 more tax than we would be if her original contribution of $1200 had been taxed and the additional $7500 was then considered deductible. 

[dmertz]

"Her plan was terminated after 6 weeks/3 payroll periods."

That's certainly improper.  (I read your original post as indicating that she terminated employment rather than the plan being terminated.)  Beginning in 2024 a SIMPLE IRA plan can be replaced with a 401(k) plan mid-year (terminating the SIMPLE IRA plan), but that tax code change doesn't apply to 2023.

The IRS is doing nothing more than enforcing the tax code with regard to this.  The requirements for deductibility of a traditional IRA contribution were established by law beginning in 1987 and only the cost-of-living-adjusted thresholds have changed since then.

"I have done a what-if on TurboTax and we are paying $1900 more tax than we would be if her original contribution of $1200 had been taxed and the additional $7500 was then considered deductible."

That's not really accurate.  If deductible, it would just be taxed in a later year rather than in 2023.  You don't get double taxed on the contribution.

 I'm not sure how your investment/tax advisor is involved in any of this.  A traditional IRA contribution might be a good thing even if not deductible.