Stupid Mistake deposited money into Traditional IRA

In a last minute rush, I deposited $5000 into a Traditional IRA before filing my taxes As it turned out, my income is so high as not allow any deductions on this money. Now, I guess this money will be taxed when it is pulled out as well. Is there any way to pull this money out without incurring any additional taxes or penalties?

Reply to
Deodiaus
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The simplest way to go is to file an 8606 for a contribution to a non- deductible IRA. That gives you a basis in your IRA, and so distributions will not be

100% taxable.
Reply to
brew.one

In the end, the $5K itself (not including earnings) will not be taxed again, although depending on the other amounts in the IRA, it could take a long time to get it all out. Each distribution includes some of your basis prorated according to the ratio of non-deductible (basis) to total amount in the overall IRA.

In 2010, under current tax law, you could convert the Traditional IRA into a Roth without any income restrictions, subject to the same pro-rated treatment.

Some folks have been deliberately making non-deductible IRA contributions the last few years for this very reason.

-Mark Bole

Reply to
Mark Bole

Did you qualify for a Roth contribution for 2008? If so, you can "recharacterize" that contribution as a Roth contribution. See Pub 590.

-------------- Phil Marti, VITA Volunteer Clarksburg, MD

Reply to
Phillip Marti

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