depositing a 401(k) corrective distribution into an IRA. deductible/nondeductible.

[Lori H]

an HCE received a corrective distribution prior to 3/15/05 and wants to put this in an IRA. i beleive this is a no no. she is single and her income from this employer was 100,000 for 2004.

first she would have to pay taxes on the distro via 1099r. couldnt she possibly make a nondeductible contribution to it, better yet establish a ROTH IRA and deposit into it?

thanks.

[No Name]

Lori,

Money is fungible, as you know. Once the refund is reported as taxable, it doesn't matter what she does with it.

I'd watch the Roth income limits for eligibility to contribute. Traditional IRA is an option. I'm asking myself why I would go that route. I'm thinking of the dichotomy of whether ordinary income tax or capital gains tax will be the same x years from now as they are now.

[WDIK]

I agree with No Name that it is a two-step process. First make the corrective distribution (applying the applicable tax consequences). Second make a contribution to an IRA (applying the applicalbe tax consequences).

(I am confused, however, as to why No Name's money is moldy, nor do I know why No Name is pondering about phases of the moon.)

[No Name]

Took me a while...

Dichotomy

1. Division into two usually contradictory parts or opinions: “the dichotomy of the one and the many” (Louis Auchincloss).

2. Astronomy. The phase of the moon, Mercury, or Venus when half of the disk is illuminated.

3. Botany. Branching characterized by successive forking into two approximately equal divisions.

Fungible

1. Law. Returnable or negotiable in kind or by substitution, as a quantity of grain for an equal amount of the same kind of grain.

2. Interchangeable.

Note that the Latin root "Fungi" means "Vice", I guess as in "Vice Versa".

Thanks, WDIK, for getting me to ask "Huh?"

[Lori H]

thanks