undo roth contribution?
If someone made a roth contribution a few weeks ago (ie within a 60 day window), but because of their tax picture they would have been better doing a traditional contribution this year (Retiring end of this year – so higher tax bracket today vs. next year).
I know in the past there was a roth recharacterization option, but that went away in 2017 / 2018 I believe. This person is eligible to make the contribution so removing it via an “excess contribution” doesn’t apply. What they really would like is to get it into the traditional IRA for 2021 and then do a conversion on that money (and more) in 2022 when their personal tax rate / taxable income is lower.
Is there any mechanism you know of that allows them to take a contribution back out so it can go into a traditional ira instead?
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-09 22:54
A conversion can no longer be recharacterized, but a regular IRA contribution can be. Therefore the custodian can be asked to recharacterize the contribution as a TIRA contribution. This is not a distribution and 60 days for rollovers is not applicable because this is not a rollover. The contribution will then be treated as if it was a TIRA contribution all along, and it will either be deducted on the 2021 return or reported as non deductible on Form 8606.