In the process of filing my taxes and unfortunately didn't notice that I will be hitting the AGI limit with the IRA contribution to my wife's account and it isn't deductible. Had contributed $6000 to my wife's IRA account end of December 2022. Traditional IRA account currently still holds cash balance of more than $6000 i.e the contributed amount is technically not invested. Can the $6000 contribution without penalty from the account ? Or is it too much of hassle that I am better off leaving it in the IRA and file it as nondeductible IRA's form 8606. Any advice will be appreciated.
Any investment gain or loss attributable to the $6,000 contribution is determined over the entire value of the IRA. Only if there was no net change in the value of the entire IRA between the time the $6,000 was deposited and the time the return of contribution is made with the return of contribution result in a distribution of exactly $6,000.
If the total balance in your wife's traditional IRAs is not much more than $6,000, it would make sense to keep the nondeductible traditional IRA contribution and do a Roth conversion of all of her traditional IRAs in 2023, leaving a year-end balance in traditional IRAs of zero.
you don't want to have to track a Form 8606 prior basis for the life of the IRA because of a filing laziness.
Thank you for the response. So the guidance would be to keep the contribution to traditional IRA and convert this to Roth IRA so that it can be reported as re-characterization to Roth IRA for next year taxes or should I do this before I file the taxes this year ?