Taxpayer who is covered by an employer pension plan (I believe it is either a 403B or a 401K) made deposits in an IRA for 2007 and 2008. I believe the 2008 deposit can be corrected by selling the stock and reporting the gain or loss. But can the 2007 deposit be corrected or does the taxpayer have to wait until the distribution age to sell it without paying an early distribution penalty.
My cousin who thinks I know taxation asked me this. I told her I'd get back to her in a few days.
Dick
I'm confused by your choice of subject lines. Why were these contributions incorrect and in need of fixing? Being covered by an employer plan doesn't disqualify one from making IRA contributions. It may mean that a traditional IRA contribution isn't deductible, depending on AGI.
Anyway, it's not too late to "undo" a 2007 contribution. That can be done through 10/15/2008 regardless of whether or not the taxpayer got an extension to file. Before doing so though, make sure that's a wise course of action. If positive earnings are distributed (not likely) the 10% penalty applies to the earnings.
Details are in Pub 590.
Phil is right. A nondeductible IRA contribution is not limited by AGI or even filing status. And it can be a nondeductible contribution, and the form 8606 can be filed now if not already filed.
If it was deducted, amend the 2007 to remove the improper deduction.
Isn't the record keeping for having both deductible and nondeductible IRA contributions in a traditional IRA a real PITA? Maybe makes more sense to back out the nondeductible contribution.
In article , Gil Faver >>contributions
Depends on your threshold for annoyance.
Having any nondeductible Traditional IRA contributions means using and saving the last 8606. Speaking for myself, after I've worked this for the first few hundred 8606s, it becomes pretty routine and simple.
Gil Faver wrote: [snip]
If you are not past the due date of the return, you could also recharacterize the nondeductible contribution to a Roth IRA.
The due day plus extensions?
Yes.. this falls under Treas. Reg. 301.9100-2 (this is what Phil was alluding to in his post) when he mentioned the 10/15/08 date. That Reg. spells out the procedure to be used by a taxpayer who is making an election and wants to use the extra six months.
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