Recharacterize Dedutible Traditional IRA to Roth IRA
Hi All,
In Jan. 2008, I contributed $5k to my deductible traditional IRA account. But, I won’t be able to deduct my contribution because my MAGI is over the required limit. Thus, I need to re-characterize, transferring the $5k from T-IRA to ROTH IRA, which I need to open. Below are my questions:
1) The $5K is now reduced to $3k because of the market. Will Vanguard, my IRA custodian, do the calculation for me?
2) Will there be any fees for re-characterization?
3) How should I file my tax form?
Thanks so much,
–J
Permalink Submitted by Alan Spross on Sun, 2009-02-08 22:25
1) Yes, Vanguard will do the earnings allocation calculation. You probably know that it is based on the results of the entire IRA, not just that of the investment you purchased with the contribution. Before you do this, be sure your income is not also too high for a Roth.
2) No. IRA custodians have not been charging a fee for the most part, although that could change at any time since there have been so many recharacterizations this year, particularly of conversions.
3) If the recharacterization to a Roth is completed, all you should do is add an explanatory statement to your return that you made a contribution to your TIRA of $x and recharacterized the entire contribution to a Roth IRA on xx/xx/2009, which was then worth $y.
Permalink Submitted by Jay Zhang on Tue, 2009-02-10 06:02
Hi Alan,
Thanks so much for your answering to my questions so quickly. I greatly appreciate it.
–J