non deductible IRA

[D Lewis]

An accountant has asked me the following question, which I haven't heard before, and I am not an IRA expert.

He has someone that files jointly and the employer does not have an employer sponsored plan (his wife's employer does if that matters).

Their combined income is over the limits so that he cannot make a Roth IRA contribution. He can make a deductible regular IRA contribution, but he doesn’t want to.

The question is, can he make a regular IRA contribution and elect it to be non deductible?

If that is possible, he then wants to know if after the non deductible regular IRA contribution is made, can it be rolled to a Roth IRA.

I told him if he is able to make a deductible IRA contribution, he could do that and roll it to a Roth IRA, but since the regular IRA contribution would be for 2012, and the conversion would be 2013, he doesn't want to do that.

Thanks

[Lou S.]

Does he currently have any IRA? If no, then he could could make a non-deductilbe IRA contribution (for 2012 and 2013) and immediately convert it to a ROTH IRA. While it would be a 2013 conversion, he would only be taxed on the gain which would be nearly non-existant if conversion done on day account opened or next day; most financial institutions are set up to handle this kind of transaction as it is not that uncommon.

Now if he already has any existing IRA it gets more complicated as there are rules for apportioning the after-tax basis based on the combined total of all the individuals IRAs but the CPA should be able to help with those questions..

[masteff]

A google search term to try is: backdoor roth ira

Also refer to IRS Publication 590 and Form 8606

[D Lewis]

Yes he does have an existing traditional IRA, so the accountant has abandoned the idea.

Thank you both for your help.