Recharacterize from TIRA to Roth

Submitted by Mhotchkiss on Thu, 2014-11-20 21:05

Just to be sure I understand this – client has funded a non-deductible TIRA during 2014 because he is ineligible for Roth contribution based on earnings. If he were to ‘recharacterize’ these contributions to Roth, would he not be creating excess contributions subject to the 6% penalty? In this case, wouldn’t the only way to get it into the Roth IRA be by conversion? If he had done this in prior years, what would need to be done to fix it if it is wrong to do?
thanks, -m



Submitted by Alan - IRA critic on Thu, 2014-11-20 21:32

  • You are correct that an excess Roth contribution would be created by recharacterizing. And a recharacterized contribution cannot be reversed, but it can be withdrawn with allocated earnings. If client has no other non Roth IRA balance but the recent contribution, he could just convert it to a Roth IRA, paying taxes only on the earnings on the contribution.
  • I think you are indicating that client recharacterized a TIRA contribution to Roth in the past. For years prior to 2014, if his modified AGI is too high to a Roth, he has excess contributions that need to be corrected, and Form 5329 filed to pay the 6% excise tax. Only a 2014 contribution is recent enough to be withdrawn with allocated earnings. Withdrawing old excess contribution does not involve earnings calculations, that would only apply to the 2014 excess contribution. Finally, note that there is no statute of limitations on excess contributions unless a 5329 is filed, and if a 5329 is filed correctly, it would entail payment of excise taxes due.

Submitted by [email protected] on Thu, 2014-11-20 21:34

perfect.  thanks. -m

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