IRA/ROTH IRA recharacterization
I have discovered with a new client to the firm that IRA contributions were made over the past several years for a taxpayer who is covered by an employer sponsored plan and whose MAGI is above the threshold for allowing any deduction. In addition, the IRA funds were comingled with an IRA Rollover (from a former employer’s 401(k).
Rather than amending each year’s return in which a contribution was made for the ineligible spouse, I am proposing to recharachterize the IRA contributions as ROTH IRA contributions. What effect, if any, do the rollover funds have on creating the ROTH IRA account?
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-22 20:59
I don’t see how an ineligible deduction could occur unless client has been filing paper returns. Tax programs would catch this mistake. Also, if contributions were made for both spouses, the income limit is higher for the non covered spouse than for the client, so that needs to be checked out. The older years are now closed and 2013 will close next month so client has probably avoided problems there. More recent years can be amended and 2016 and 2017 contributions can still be returned or recharacterized. It does not matter that contributions were made to a rollover IRA as 2016 or 2017 contributions can still be recharacterized if necessary. Before recharacterizing as Roth contributions client should be sure that joint MAGI is not too high for Roth contributions.