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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]
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]
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