No announcement yet.

401k and IRA - think my accountant gave bad advice

  • Filter
  • Time
  • Show
Clear All
new posts

  • 401k and IRA - think my accountant gave bad advice

    So this year I contributed 5500 to my and my wife's traditional IRAs for 2016, and then as we had the cash on hand I invested 5500 each for 2017.

    We met with our accountant and he said that we can not contribute to IRA due to my wife's 401k that she gets from her job (she is maxing out 18000 per year).

    Everything I have read says that we can place money in BOTH 401k and traditional IRAs, so my question is was my accountant wrong or is there some other reason that we can not do this.  He said that I needed to move that money to a "non-deductable account" and so I performed a return of excess contributions on these contributions and in order to do that I had to liquidate the stocks that I had invested the money into.  Now I am facing gains and early withdrawl penalty on those funds.

    Am I getting bad advice from our accountant?  What can I do to reverse this mistake?



  • #2
    - anyone can contribute to a TIRA
    - not everyone can deduct those TIRA contributions (based on income, filing status, and presence of an employer retirement account, i.e. 401k)

    - not everyone can directly contribute to Roth (income cap)
    - anyone can convert TIRA to Roth (you'll pay tax on anything that hasn't been taxed yet)

    That being said, your accountant is probably right that you can't deduct your contributions. That shouldn't mean that you need to withdraw them, however. I don't see why you couldn't just not deduct the contributions and convert them to Roth, only paying taxes on the gains - basically just a classic Backdoor Roth.

    What was your total TIRA amount on 12/31/2016? Did you already have TIRA money in addition to the $5,500 for 2016 and 2017?


    • #3
      You were correct in contributing to TIRAs. The contributions simply were nondeductible. Your accountant should reimburse you for the early liquidation penalties caused by erroneous advice and apologize. (I don't think he should pay the taxes on the gains because you made money and got to keep it, even though that wasn't the plan.) It is too late to reverse the mistake afaik but don't compound it by continuing to do business with him.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087