Roth Recharacterization
I have a client who contributed to their Roth IRA in March of 2013, for the tax year of 2013. However, she ended up making more than the Roth contribution limits allow.
She has had about a 15% position in money market throughout the year. Since there was very little interest on this cash portion, can I just Recharacterize the $6,500, or do I need to do the $6,500 plus the average rate on the whole portfolio?
Terry
Permalink Submitted by Alan - IRA critic on Thu, 2014-04-03 16:41
The gain or loss of the entire Roth account into which the contribution was made must be used to calculate the earnings or loss. Since cash is only 15%, then 85% of the account could have a considerable gain or loss. Most custodians will do the calculation when you order the recharacterization, but since this client has 3 choices to address the excess contribution, it is helpful to know the amount of earnings before deciding on the method to be used. If client plans to recharacterize and then convert, the conversion will include the earnings as taxable plus much more if client has any other pre tax non Roth IRA values.