tIRA contributions, deductions and/or Roth Conversions when NOT covered by a Retirement Plan

[TetrisCollider]

2023 will be the first year when neither of us are covered by a Retirement Plan at work (because one of us has fully retired in 2022). However, our expected total income in 2023 is above the limit (and does include earned income) to contribute directly to a Roth IRA. The plan is to contribute to one person’s tIRA the full allowable amount ($7,500), but this will be fully deductible (since neither of us is covered by a Retirement Plan). Moving forward, this will be the situation for at least the next several years.

Based on the above scenario, I am trying to answer the following questions:

• Can we chose NOT to deduct this IRA contribution? If yes, how do we do so in TurboTax?

• If we don’t have such an option and this tIRA contribution will be flagged automatically deductible in TurboTax, the plan is to immediately do a Roth Backdoor conversion. The current tIRA account(s) for this individual (one of us) has a basis of ZERO, so I presume we’ll just pay the expected 2023 taxes equal to the tIRA deduction amount and that’s going to be the only outcome of the immediate Roth conversion and the tIRA basis for next year (2024) will still be ZERO? If this is the correct expected outcome, this will be repeated every year.

• Does it make sense at all to do a Roth Conversion in the above scenario (in my mind, the answer is yes)? At this point, we are still about 20 years away from the required RMDs (from 401K). And yes, we do have each Roth IRAs established many years ago and funded every year. We’ll be 59 ½ in about 4 years, so I am not really worried about the 5 year rule.

• Am I missing any other gotchas?

Thanks in advance for your wisdom.

[mhalley]

In general, just contributing to a non deductible ira without doing the backdoor Roth is considered to not be worth the increased tax complexity going forward.

[FiveK]

• Can we chose NOT to deduct this IRA contribution? If yes, how do we do so in TurboTax?

Yes. See the Using tax software part of the Backdoor Roth wiki, and links therein, for details.

The Traditional versus Roth and Roth IRA conversion articles go into more detail on those choices.

[retiredjg]

Yes, you can choose not to deduct if you want. Or deduct and then convert. The tax ends up the same although your 1040 looks a little different.

There would be no point in making the contribution non-deductible if you don't go ahead and convert to Roth.

[Mableweiss]

It sounds like you’re only interested in doing a backdoor Roth IRA contribution (bc you expect to be in a high tax bracket in retirement.)

But from what you’re describing, I believe you also have the option of making 2 deductible traditional IRA contributions ($7500 each for 50+ y/o, with one of those made as a spousal IRA contribution).

I always prefer pre-tax savings options, but we are only anticipating ~$90k in annual household retirement income.