Minimizing bookkeeping on a traditional IRA with a non-deductible component

[daverusin]

In April 2025, my wife and I filed our federal income taxes for 2024, and she made an $8000 contribution to her traditional IRA (for 2024). Today I reviewed that return; our income had risen, and only $4420 of her $8K could be deducted, so instead TurboTax gave her a $3580 non-deductible contribution to her IRA. I believe it can stay there, and when she goes to withdraw the money, she has a $3580 basis on it, i.e. she will pay income taxes only on the gains. In practice this requires a lot of bookkeeping of regular and non-deductible contributions on form 8606. What a lot of work, potentially for decades, over a smallish error! Is there a way to put an end to the mix of tax types within the IRA , by making a withdrawal or Roth conversion or something?

A related question: IRAs are property of an individual, not a couple, even though we are married-filing-jointly. On form 8606, we are told to add the value of all "your" traditional IRAs. Is that a singular or plural "you"? (My IRAs are surely confusing since I have rolled over some 403b money into them recently.)

[Lou S.]

You need to track the basis if you want to recover it tax free. Yes, that can be a pain.

Your wife could convert all of her regular IRAs to ROTH-IRAs, but you would have to pay taxes on the conversion since you can't just convert the basis which would be simple but isn't easy to do in the tax code due to having prorate withdrawals between basis and earnings. ROTH conversion may or may not result is a large unexpected tax bill next year depending on the size of her IRAs.

The form is per individual, so if you have no non-deductible IRA contributions to tract, you only need to hers. To answer your question, it would be singular you as the form is by individual even if married filing jointly.

[daverusin]

Thank you, that is very helpful!