Thanks for taking the time to comment, @secondcor521 and @terran.
I don't qualify for the Saver Credit, but thanks for pointing that out so that I could check out the possibility.
Also, my understanding is that I cannot deduct any portion of my 2024 traditional IRA contribution (because my modified AGI is above $10,000 + lived together for part of 2024 + married filing separately). See https://www.irs.gov/retirement-plans/plan-participant-employee/2024-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work
secondcor521, does this affect your comment about tracking contribution basis for the rest of my life? (I'm not completely following you, there. I'm going to do some research based on your comment to try to understand. I welcome further information if you see this and have additional comments.)
Thanks again, I appreciate your help.
Good on you for checking to see if you actually qualify to take the deduction for the traditional IRA contribution. It looks like you're right and it would not be deductible based on that link.
(Option 1) If you recharacterize to your traditional IRA as you currently plan, then yes, my comment would apply. The idea is that most of the time, traditional IRA contributions are deducted from income, so that later when you withdraw from the IRA, the money is taxed at that time. If you make a contribution but don't deduct it, then you've already paid income tax on those dollars, so they don't need to be taxed later upon withdrawal.
If you have a mix of deductible and non-deductible contributions to a traditional IRA, then when you withdraw, it's done on a pro rata basis - you get a portion of your deductible dollars back and a portion of your non-deductible dollars back. Because of the way the math works, you need to keep track of a couple of figures to determine the pro rata amounts, and at least one of those carries forward from year to year.
These calculations are done on Form 8606 Part I.
You have two other options to avoid this hassle. Also, note that some people don't find it much of a hassle at all, and if you can correctly answer the questions in a tax program about what you did (which I think is difficult, but some people don't), then the tax program can do the math for you. Oh, don't ever switch tax programs, or if you do be sure to type in your Form 8606 information from your old tax program.
Option 2: Backdoor Roth, as terran mentions above. A mildly tricky maneuver to do precisely right, but I think a lot of people do their best with the mechanics and the paperwork and I've never heard of the IRS being particularly tough on enforcing the rules in these areas.
Option 3: Just distribute the Roth IRA contribution back to yourself (plus / minus earnings) and treat it as though you never made a contribution in the first place. If you had earnings, those would be taxed but I don't think there is a 10% penalty on them anymore. I am not up on the details here but perhaps terran is.
Personally I would (and did) do option 3 to avoid the negatives (for me) of option 1 and option 2. But everyone has their own preferences.
