Non Deductible IRA (taxes, income, employment, convert)

[spalam01]

My total income for 2011 is about $115,721. Including $15443 (Non IRA) expenses my adjusted Gross income is $100,278. My tax filling status is married and filing jointly.

I went ahead and contributed to IRA for $10K even before my taxes are done.

My CPA mentions that about $2560 of my IRA tax is non-deductible and only $7440 IRA contribution can be deducted can be deducted as I have high income limitation.

I looked at the Non-deductible Traditional IRA - Bogleheads and it looks like partial IRA deduction can be done for the AGI between $90 to $110K for married filing jointly.

Any idea how the number $7440 is arrived?

If I gohead and reduce my IRA contribution to $7440, will I still get the same refund or would my refund amount decrease?

If not and if I convert this $2560 non-deductible IRA to Roth IRA and will I get the same refund or would my refund amount decrease?

If both are not possible, do I need to gohead and inform my IRA bank that about $2560 is non deductible IRA

Please advice.

[md21722]

The worksheet is deep in Publication 590 (see below)

Your refund will not decrease if you reduce the contribution from $10000 to $7440 or if you move $2560 into a Roth.

You do not need to inform your bank. The most they will do is report the total contribution to you and the IRS. What you do with what they report is between you and the IRS.


Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2011

(Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status.)
Note. If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately.
IF you ... AND your
filing status is ... AND your
modified AGI
is over ... THEN enter on
line 1 below ...
are covered by an employer plan single or head of household $56,000 $66,000
married filing jointly or qualifying widow(er) $90,000 $110,000
married filing separately $0 $10,000
are not covered by an employer plan, but your spouse is covered married filing jointly $169,000 $179,000
married filing separately $0 $10,000
1. Enter applicable amount from table above 1.
2. Enter your modified AGI (that of both spouses, if married filing jointly) 2.
Note. If line 2 is equal to or more than the amount on line 1, stop here.
Your IRA contributions are not deductible. See Nondeductible Contributions .
3. Subtract line 2 from line 1. If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. You can take a full IRA deduction for contributions of up to $5,000 ($6,000 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3.
4. Multiply line 3 by the percentage below that applies to you. If the result is not a multiple of $10, round it to the next highest multiple of $10. (For example, $611.40 is rounded to $620.) However, if the result is less than $200, enter $200.

Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 25% (.25) (by 30% (.30) if you are age 50 or older).

All others, multiply line 3 by 50% (.50) (by 60% (.60) if you are age 50 or older).


4.
5. Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5.
6. Enter contributions made, or to be made, to your IRA for 2011, but do not enter more than $5,000 ($6,000 if you are age 50 or older). If contributions are more than $5,000 ($6,000 if you are age 50 or older), see Excess Contributions , later. 6.
7. IRA deduction. Compare lines 4, 5, and 6. Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7.
8. Nondeductible contribution. Subtract line 7 from line 5 or 6, whichever is smaller.
Enter the result here and on line 1 of your Form 8606 8.