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Stay at home spouse and IRA...is my accountant right?

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  • Stay at home spouse and IRA...is my accountant right?

    New attending with stay at home spouse. I made about 190k last year (was a resident for half the year) and my wife had no earned income.

    About to confirm my taxes for this year, and my accountant says my wife's IRA contribution can count as a deductable IRA. The catch is that the conversion of my wife's IRA to a Roth will be taxable to me the following year.

    Is that true?

    Also, he said going forward I wouldn't have to do a backdoor roth for her, and could just put money directly in her roth. Both of these statements sounded off, so wanted to check here. Thanks.
    Last edited by hebel; 03-17-2021, 07:21 PM.

  • #2
    The statement of the Roth IRA conversion being taxable doesn't sound correct. Tax forms can span two years if you made a 2020 traditional IRA contribution after Jan 1, 2021. Then form 8606 is harder to fill out-- the traditional IRA contribution is in your taxes for 2020 but the conversion to Roth IRA isn't submitted until you do your 2021 taxes next year. But, only the amount converted >$6K/year should be taxable. See the links below.

    How to fix Backdoor Roth IRA screwups
    Late contributions to Roth IRA

    The second statement about contributing directly to a Roth IRA in your income bracket also sounds wrong. If you did that I think you would end up needing to recharacterize the contribution (first link above). If she has her own income and you file taxes separately, maybe she would qualify (depending on income).

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    • #3
      Originally posted by poose View Post
      The statement of the Roth IRA conversion being taxable doesn't sound correct. Tax forms can span two years if you made a 2020 traditional IRA contribution after Jan 1, 2021. Then form 8606 is harder to fill out-- the traditional IRA contribution is in your taxes for 2020 but the conversion to Roth IRA isn't submitted until you do your 2021 taxes next year. But, only the amount converted >$6K/year should be taxable. See the links below.

      How to fix Backdoor Roth IRA screwups
      Late contributions to Roth IRA

      The second statement about contributing directly to a Roth IRA in your income bracket also sounds wrong. If you did that I think you would end up needing to recharacterize the contribution (first link above). If she has her own income and you file taxes separately, maybe she would qualify (depending on income).
      Thank you, scenario 1 does apply to me (made 2020 contributions and conversion in January 2021). I'm planning on continuing to do bd conversions for both of us going forward to be safe.

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      • #4
        Would not do deductible IRA for 2020 only to pay the taxes in a higher tax bracket to convert in 2021 (if you do deductible IRA for 2020 then all of the contributions and earnings will be taxable at the time the conversion is made). Your income is close to maximum to do a Roth directly. Could do back door Roth for both of you for 2020 if you have the available cash and haven't filed your taxes yet.

        You are correct to question this advice. If you are filing jointly and your Modified AGI for 2021 is above 198K then you both need to do back door, not direct Roth

        The question regarding conversion taxation is that it is taxable in the year that you do the conversion. If you do the back door correctly, the taxable amount is at or near zero.

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