Reclassify Roth Contribution to Traditional Contribution for 2019

Submitted by Brian Bishop on Mon, 2020-02-17 16:47

Have a client who made a 7,000 Roth contribution for 2019. After preparing his 2019 return, realized he would be benefited more than expected by a traditional contribution vs. a Roth contribution. Can he have the contributions made with Vanguard reclassified to a 2019 traditional contribution or is it too late? Thanks!!



Submitted by Alan - IRA critic on Mon, 2020-02-17 18:31

  • Client can request that the 2019 Roth contribution be recharacterized as a TIRA contribution, however earnings on the Roth contribution will also be transferred to the TIRA, moving them from a tax free Roth upon qualification to a taxable TIRA. Given the impressive market gains in recent months, recharacterization could be short sighted, even though it would reduce 2019 taxes. If the 2019 contribution was just made, then it did not generate much in earnings, but client needs to determine what the earnings were to best make this decision. 
  • For example, if his contribution made 20%, then 1400 of earnings will transfer to the TIRA. Conversely, if the contribution generated a loss, then recharacterization would be more beneficial. Of course, like any TIRA v. Roth decision, his current marginal tax rate should be compared to his projected marginal rate in retirement once RMDs begin at 72.
  • If he still wants to recharacterize, the deadline is 10/15/2020 if he either files his 2019 return on time or files a timely extension.

Add new comment

Log in or register to post comments