Self funded contribution to company 401k from IRA

[jim401]

In 2023 I put $7,500 in my wife's IRA. She took a new job which  automatically enrolled her in a 401k. I am in the process now of retrieving that $7500 and rolling it over into her 401k.  Where on TT do I show this contribution to her 401K so I can get the deduction?

[Mike9241]

you don't! the iRA contribution was the deduction in 2023 or if it was a non-deductible 2023 contribution then there is no deduction in 2024. 

When you move funds from a nondeductible IRA to your employer’s 401(k), the tax consequences can vary. Generally, if you perform a direct rollover, where the funds are transferred directly from the IRA to the 401(k), there are no immediate tax consequences. This means the money is not considered taxable income at the time of the transfer.

However, it’s important to note that the 401(k) plan must allow for such rollovers, and the contributions must be from after-tax dollars to avoid double taxation. You should also report the rollover on your tax return, even though it’s not a taxable event. (double taxation tax omn the movement to the 4101(K) and you get no basis in the 4001(k) so when withdrawn your taxed again. 

[jim401]

Thx so much for your reply. Due to our income, I had to move the IRA contribution to the 401K in order to get the tax deduction for 2023. So my question is, do I just add that rollover contribution to the amount showing in box 12a of her W2 or is there a way to show where we contributed with after tax dollars?

[dmertz · Accepted solution]

It doesn't work that way.  Rolling over money from a traditional IRA to a 401(k) does not result in any tax deduction.  Also, basis in nondeductible traditional IRA contributions is not permitted to be rolled over to a 401(k).  A rollover from a traditional IRA to a 401(k) can only come from pre-tax funds in the traditional IRA.

Nothing on your wife's W-2 is permitted to be changed.

There is nothing that can be done with a nondeductible 2023 traditional IRA contribution that will reduce 2023 taxes or make the contribution deductible.

What you might be thinking of doing is obtaining a return of the traditional IRA contribution, resulting in the traditional IRA contribution being treated as never having been contributed.  The distribution must include the attributable investment gain or loss with any gain being taxable on your 2023 tax return.  Once distributed to your wife the funds are just cash.  Your wife is not permitted to deposit these funds into her employer's 401(k), but, provided she is not already deferring the maximum permissible, your wife could increase deferrals from her pay in 2024 to increase savings in the 401(k) and reduce 2024 taxable income.

[jim401]

Ok thank you for that answer. I have not yet received the distribution which will be a check made out to the 401k group that I planned to forward to them.. Since you are saying that this money will not gain a tax benefit for 2023, should I just instead move it into her existing Roth IRA ? 

[dmertz]

If this $7,500 is the only money in your wife's traditional IRAs and the contribution was nondeductible, your wife  can't have the check made out to the 401(k) because the 401(k) is not permitted to receive these funds.  If this is the case, this particular distribution needs to be stopped.

If your modified AGI for the purpose of a Roth IRA contribution is under $218,000 (I assume that you are filing jointly), your wife can recharacterize the contribution to be a Roth IRA contribution instead.  This would be far better than keeping the contribution as a nondeductible traditional IRA contribution