Can I undo an IRA contribution that isn’t deductible?


Q. I file taxes jointly with my spouse. We are trying to get our modified adjusted gross income (MAGI) as low as possible. We made the maximum contribution to our IRAs, but I earn too much for my contribution to be deductible, which I didn’t realize until my tax preparation software flagged me. What can I do now with that $7,000 dollars that is sitting in a new IRA with money that has already been taxed? If I convert to a Roth, I have to pay taxes. If it stays as a traditional IRA, it will also be taxed again upon withdrawal. Can I just get the money back?
— Investor

A. It sounds like you should speak directly to a tax professional before you do anything so they can review all the specifics of your situation.

You don’t want to make a mistake.

But you can withdraw your entire contribution up until Oct. 15, which is five months after your tax return is due, said Jody D’Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.

“If you have already filed your 2020 return, then you will need to file an amended federal return after you have withdrawn the funds,” she said. “It is likely that you will also need to file an amended New Jersey return as well.”

If you do not get this done by Oct. 15, you will need to pay a 6% excise tax per year that it remains in the IRA,” she said.

Another option is that if you qualify for a Roth IRA, you could repurpose the contribution and flag it as a 2021 contribution, she said.

This would only be possible if you made the contribution after Jan. 1 of 2021,” D’Agostini said. “Work with your own tax professional before making any moves.”

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This story was originally published on April 21, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.