URGENT- Change 2016 Roth to TIRA

Submitted by John Peterson on Mon, 2017-04-17 20:57

Client made a $6,500 Roth IRA contribution during 2016 for 2016.

Now wants to change to a TIRA for 2016.

Can it be done by 4/18/17 deadline and how?

Thanks



Submitted by Alan - IRA critic on Mon, 2017-04-17 22:28

If client either files his 2016 return on time or files an extension by tomorrow, the deadline to recharacterize the 2016 contribution will be 10/16/2017. If not, the deadline is tomorrow and it is too late to meet that deadline. Client could file tomorrow and report a TIRA contribution which would most likely not be deductible, file an 8606 to report a 2016 non deductible TIRA contribution and include a basic explanatory statement that client recharacterized the full 2016 Roth contribution as a TIRA contribution. That would enable client to file the return on time, avoid having to amend the return later, and still have another 6 months to actually complete the recharacterization.  It is too late to get a recharacterization processed in 24 hours, so the choice is down to filing or filing an extension by tomorrow.

Submitted by John Peterson on Mon, 2017-04-17 23:23

In this case the TIRA is deductible so if I’m understanding correctly:1. Claim TIRA contribution/deduction on 1040 filed tomorrow.2. By 10/16/2017 tell Roth IRA custodian he’s recharacterizing $6,500 as TIRA and custodian will move $6,500 (plus earnings/losses) from Roth IRA to TIRA.

Submitted by Alan - IRA critic on Tue, 2017-04-18 01:35

  • Yes, you have it. Return filed tomorrow should also include an explanatory statement that the Roth contribution will be recharacterized as a TIRA contribution.
  • Not sure if client qualifies for a Roth contribution or if client does would now prefer the deduction. However, if the Roth contribution has good earnings, recharacterization will transfer the earnings out of the Roth to the TIRA where they eventually will be taxed. In other words, the better this Roth contribution has performed, the less beneficial the recharacterization may be.

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