IRA Recharacterization from 2017

Submitted by Jonathan Sard on Tue, 2019-08-20 15:20

Can I recharacterize a Roth contribution made in 2017 or is it too late? I made too much to contribute in 2017 and I am not sure if that had to be done by October 15th, 2018, or if it must now be a return of excess contribution and penalties must be paid.

Thanks!!



Submitted by Alan - IRA critic on Tue, 2019-08-20 15:32

The deadline to recharacterize a 2017 contribution was 10/15/2018. You now have various options to resolve the Roth excess. You will owe the 6% excise tax for 2017 and that must be paid with a 2017 Form 5329. For 2018, Form 5329 automatically will apply your 2017 excess as a 2018 contribution if you did not make other contributions for 2018 and your income is low enough. Or if you took a Roth distribution in 2018, it will eliminate the excess if high enough. In other words, we need to know the status of your activity in the Roth IRA in 2018 or if you made a contribution for 2018 to any IRA type to narrow down where you stand. If none of the apply change anything, then you will want to simply request a distribution of the excess amount (no earnings) before the end of 2019 to avoid a 3rd year of excise taxes.

Submitted by Jonathan Sard on Tue, 2019-08-20 15:53

Thank you.  A 2018 Roth contribution was also made, but that is being taken care of now to be recharacterized into my Traditional IRA as a non-deductible contribution since I am still over the income limit.

Submitted by Alan - IRA critic on Tue, 2019-08-20 16:52

Since you would still be using up your IRA space in 2018 with that recharacterization, you would still owe the 6% excise for 2018 on the Roth excess carried over from 2017.  If you instead removed the 2018 Roth contribution with allocated earnings, that would create space to apply your 2017 Roth excess to 2018 and eliminate the 6% excise tax. Therefore, you should compare the cost of the 2018 excise tax on the excess Roth contribution with the tax and penalty (if under 59.5) on the earnings on your 2018 Roth contribution. Sometimes the earnings will be large enough that the tax and penalty on them would be more than the 6% excise tax on the excess.

Submitted by David Mertz on Tue, 2019-08-20 18:54

  • The 2017 Roth excess can’t be applied toward a 2018 Roth IRA contribution because in 2018 jsard is still over the MAGI limit for making a Roth IRA contribution.  Nothing can be done now to eliminate the 6% penalty for 2018 on the excess carried in from 2017.
  • To avoid the excess from 2017 being subject to another 6% penalty for 2019, the amount of the excess will either need to be distributed as a regular distribution by the end of 2019 or your MAGI for 2019 will need to be low enough for you to be able to apply it as part of your 2019 Roth IRA contribution.

Submitted by Alan - IRA critic on Tue, 2019-08-20 23:09

Good catch. Yes, the excess cannot be applied to 2018 since MAGI was still too high to qualify for a Roth contribution for 2018. 

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