Is it too late to recharacterize some of a 2020 deductible TIRA as either a RIRA or a nondeductible TIRA for tax year 2020?
In tax year 2020 a $6.000. deductible TIRA was opened. That reduced the taxable income to 0 and so the “nonrefundable” saver’s credit was no longer available. Is it too late to recharacterize $2,000. or more of that 2020 TIRA as either a Roth IRA or a nondeductible TIRA so that there would be $2,000. of taxable income in 2020 in order to obtain a refund of that year’s $1,000. saver’s refund credit by filing a 1040X for 2020?
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2022-04-11 22:33
No, it is too late to recharacterize a 2020 contribution, as the deadline to do that was 10/15/2021. However, you can still amend your 2020 return to claim any portion of your TIRA contribution as non deductible. That will increase your 2020 taxable income subject to reduction, but be sure it does not also increase your AGI enough to reduce the savers credit itself. Essentially, your 2020 taxes would not change, but you would have around 2000 of basis in your IRA going forward. That basis would affect any 2021 distributions you took as well, but the pro rate rules of Form 8606 might result in a very small savings years down the road. If you do not already have basis in your IRA, this might not be worth the hassle. Again, for 2020 you would just be exchanging a larger credit for a loss of IRA deduction. You still cannot reduce your tax bill below 0.