Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
marcinny77
New Member

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

 
1 Best answer

Accepted Solutions
BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

As you note, your MAGI can affect the deductibility of your IRA contributions. You have some options:

1.     Continue with the contribution, recognizing that part or all of the contribution will not be deductible. If you do this, then keep good records of this “after-tax” amount (also called “basis”), because when you draw funds out of the IRA later, any funds allocated to this after-tax contribution will not be taxable (since you paid tax on it the first time). You will also be required to file form 8606 and add it to your return.

2.     Ask your IRA administrator to recharacterize the non-deductible amount of your traditional IRA contribution to a Roth IRA contribution, which has higher MAGI limits. Contributions to Roth IRAs aren’t deductible, either, but the earnings of the Roth IRA are tax-free, even when you withdraw them later. This would involve less paperwork on your part (no form 8606 or tracking your basis).

3.     Contact your IRA administrator and ask to withdraw the contributions and any earnings on that amount before your tax return’s due date. Of course, you would not be able to deduct the contribution and you would have to report the earnings as income.

[Edited 01.19.2018 | 10:42 AM CST]

View solution in original post

8 Replies
BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

As you note, your MAGI can affect the deductibility of your IRA contributions. You have some options:

1.     Continue with the contribution, recognizing that part or all of the contribution will not be deductible. If you do this, then keep good records of this “after-tax” amount (also called “basis”), because when you draw funds out of the IRA later, any funds allocated to this after-tax contribution will not be taxable (since you paid tax on it the first time). You will also be required to file form 8606 and add it to your return.

2.     Ask your IRA administrator to recharacterize the non-deductible amount of your traditional IRA contribution to a Roth IRA contribution, which has higher MAGI limits. Contributions to Roth IRAs aren’t deductible, either, but the earnings of the Roth IRA are tax-free, even when you withdraw them later. This would involve less paperwork on your part (no form 8606 or tracking your basis).

3.     Contact your IRA administrator and ask to withdraw the contributions and any earnings on that amount before your tax return’s due date. Of course, you would not be able to deduct the contribution and you would have to report the earnings as income.

[Edited 01.19.2018 | 10:42 AM CST]

BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

I edited the answer to give you more options.
marcinny77
New Member

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

Thank you for your answer. I decided to recharackterize non-refundable part of my IRA into ROTH Ira. Do I still need to file form 8606? Thanks again.
BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

It depends on the nature of the recharacterization - if you recharacterize the entire $5,500 as to the Roth IRA, then no, but if in part, then yes. See the description of different scenarios on pages 4 and 5 in <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8606.pdf">https://www.irs.gov/pub/irs-pdf/i8606.pdf</a>
marcinny77
New Member

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

Thank you. I will recharacterize partially (I could deduct $1730, so remaining will be $3770, which I will call to recharackterize into Roth IRA) From what I understood I will not file form 8606, just attach some sort of statement?
BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

When you go through the IRA contribution interview (Federal->Deductions & Credits->Retirement and Investments and pick "Traditional and Roth IRA Contributions"), when you tell TurboTax that you recharacterized a contribution (or part), you will be asked to enter a statement (freeform entry on the screen) - so it will be attached to your e-filed return.
marcinny77
New Member

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

Thank tou. I found it. In examples form 1099-R is mentioned. Is it part of my IRA administrator or do I need to obtain it from them and somehow attach it to my e-file?
BMcCalpin
Level 13

In 2017 I contributed $5500 towards IRA. I have 401k with my employer. What can I do if my MAGI does not allow me to deduct this amount in full or partially from my taxes

If I understand you correctly, the 1099-R (or its electronic equivalent) will be added by TurboTax to your return.
Dynamic AdsDynamic Ads
Privacy Settings
v