Nondeductible IRA WD

[TAXMAN]

TP (age 65) contributed to IRA 9-20-2012 $5000. TP filed proper extension. Upon working on return I find that due to a large distrbution from an estate on SCH-K! makes his IRA non-deductible. Can we withdraw the $5100. now in the IRA, pay the Tax on the $100.00 on the 2012 tax return and put the $5100 in an IRA for 2013. Will not have large distribution form estate in 2013? TP has enough EI to cover this in 2013 as he is still working. What do you think? Thanks

[Guest Taxed]

Yes.

Do you have to pay any withdrawal charges or penalty to the financial institution where the money is invested?

You could also consider recharacterising it to a non deductible IRa or Roth if the income limit permits it.

[Don in Upstate NY]

Is the IRA in question his only IRA and does it have only the $5000 contribution plus earnings in it? If the answer is NO to either of these questions then the taxable amount of the withdrawal will be more than $100.

It isn't clear what the taxpayer's objective is.

[TAXMAN]

Tp has IRA at a different bank. THis IRA is at a brokerage house and has several IRA's there. TP's objective was to make it a deductible IRA and not a nondeductible due to income phaseouts. Tp will not have this much income in 2013. maybe would be better to convert this to roth and leave it alone.

[Guest Taxed]

If the IRA is with a brokerage house and invested in securities you will not know the gain/loss until the securities are sold. So that makes it tricky. I am assuming the $100 that you stated was a ballpark guess?

If you can convince the taxpayer, it may be better to recharacterise it into a Roth and not incur the liquidation charges etc. It is clean.