Distribution From Roth IRA
Hello Everyone,
A client of mine has contributed $6,000 in 2009 to her Roth IRA. After meeting with her accountant, she asks me to withdraw from her Roth IRA and make a $6,000 deductible contribution into the Traditional IRA. My understanding is that the technical term is recharacterizing her Roth contribution rather than simply withdrawing from the Roth and redeposit into her traditional IRA. Just thought I would seek clarification.
Thank you.
Permalink Submitted by Alan Spross on Thu, 2010-03-04 04:20
You are correct. She should have the contribution recharacterized as a TIRA contribution if the change is needed or warranted. This must be done by direct trustee transfer, usually a same custodian transfer to a TIRA in existence or newly opened with the same custodian. Any earnings are transferred along with the contribution. It cannot be done by an indirect rollover.
This is much more efficient than asking for a return of contribution and then making a new contribution to a TIRA. The earnings will then be taxable and subject to penalty, but it could be done that way if there was some particular reason to live with the disadvantages.
Perhaps she can deduct the TIRA contribution, but if she is not eligible for a Roth contribution OR a deduction, then a non deductible TIRA contribution becomes the only choice.