FAQ FRIDAY - July 4, 2008

Q. Following on the last two weeks’ questions, if I put money into an IRA that ends up being “not” deductible, can I take it back out?

A. You can take it back out no later than April 15 of the year following the contribution. For example, if you put $5,000 into a deductible IRA during 2007 and then discover while doing your tax return in March of 2008 that you didn’t qualify for the deduction, you can still take that money out with no penalties. Consider putting it into a ROTH IRA if you qualify for that. If you leave the money there, you must track the non-deductible amount on Form 8606 for as long as you have any IRA monies. You do not have the option to withdraw it after April 15.
If you have already put money into a deductible IRA for this year and realize now that you won’t get the deduction, contact your custodian to see if you can re-characterize it to a ROTH. There are income limits for this as well.

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IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of 1. avoiding penalties under the Internal Revenue Code or 2. promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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