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Several issues...1.First of all she may contribute to IRA regardless of having retirement plan at work.2.Her deduction for the traditional IRA contribution is limited based on if she is covered by a retirement plan at work. See here - http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2012--IRA-Contribution-and-Deduction-Limits---Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-WorkThat limitation is applied regardless if she actually participated or not - but because she was ELIGIBLE to participate. If yes - the box on line 13 form W2 should be checked.3.If she may not deduct traditional IRA contribution - most likely she will be able to make nondeductible contribution into Roth IRA - and potentially her earnings will not be taxable as long as she will have Roth IRA at least five years.4.Is her contribution to an IRA be a non deductible resulting in no tax benefit, or would it be considered an excess contribution and subject to interest of 6% per annum ?That is not the situation when she may not make a contribution - she definitely are allowed to contribute - so there is no excess contribution penalty. But she might be not allowed to deduct her contribution.What are the risks in making such contributions before April 15, 2013?There is no risk in making contributions but the risk is if you would claim a deduction in case she is not eligible.Does the IRS have a matching between 403(b) and IRA?Yes - administrators of both plans are sending information to the IRS and the IRS do have a matching verification.
She is single and her modified AGI is more than $ 68,000. Therefore based on your link the IRA would be non deductible. She is no longer employed by the school, she resigned. Let say that that she will make a non deductible IRA, which creates a basis and next year she will take money out of IRA, in the amount of $ 4,000, can she tell her broker that the the taxable amount is zero on the ground that the gross distribution is equal to basis?
If she makes a nondeductible contribution to the traditional IRS - she would need to file form 8606 with her tax return to report that fact - and yes - she will need the basis in her IRA. That is not reported to the broker - she would need to keep track of her basis.I think the better option is to make the contribution to Roth IRA.However - if she plan to take the money out next year - I see no reason in making a contribution in the first place.
Two comments regarding contribution to a Roth IRA:
She is 65 years old but her MAGI are more than more than $ 125,000. Therefore she is ineligible for a Roth IRA
All distributions received by her in 2011 were not taxable.
Based on your information - she is not eligible to make Roth IRA contributions - see here - http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-for-2012So - her only option is to make nondeductible contribution to the traditional IRA.However - after making IRA contribution - she may convert funds from traditional to Roth IRA - there is no AGI limit for conversion.
You wrote: So - her only option is to make nondeductible contribution to the traditional IRA.
However - after making IRA contribution - she may convert funds from traditional to Roth IRA - there is no AGI limit for conversion.
I agree with you that beginning in 2010 with the year 2010, there is no restriction income or filing against converting to a Roth IRA. But it is based on filing status and income. As I mention earlier my friend is single and her income is over 125,000. Based on previous correspondence she is not allowed to have a Roth IRA ,or contribute any amount to Roth Ira either directly or by conversion to begin with.
The tricky part is figuring out (1) what the tax cost of converting to a Roth will be, (2) whether converting to a Roth will save or cost you money over the long-run, (3) whether it makes sense to take advantage of the government's one-time only offer to spread the cost of a Roth conversion over two years, and (4) how much to convert.
I recommend that you read http://taxes.about.com/od/retirementtaxes/a/Roth-IRA-Conversions_2.htm
BTW: Interestingly enough my first name is Zev