Roth Recharacterization issue
SUBJECT:
ROTH Recharacterization
QUESTION:
When a ROTH contribution is required to be recharacterized to a nondeductible IRA, do the earnings when the investment was a ROTH have to withdrawn if they exceed annual IRA contribution limits?
BACKGROUND:
Individual had excess ROTH contributions in 2012 and 2013. He recharacterized the ROTH contributions to a nondeductible IRA in 2013.
His 2012 recharacterized amount (including earnings) was $2,987. His 2013 recharacterized amount was $6,706 ($6,500 plus earnings of $206).
The 2012 recharacterized nondeductible IRA was less than the 2012 contribution limit.
The 2013 recharacterized nondeductible IRA exceeded the 2013 contribution limit by $206.
The software calculated a $206 excess contribution, subject to the 6% excess contribution limit.
should he be advised that the $206 should be withdrawn from the IRA by 4/15/2014, to avoid the excess contribution limit.
An advisor said that the $206 earnings are not required to be withdrawn, because they are treated as earnings (and basis) in the recharacterized traditional nondeductible IRA.
Does the $206 earnings that were recharacterized from a ROTH to a traditional nondeductible IRA have to be withdrawn to avoid an excess contribution penalty?
Permalink Submitted by Alan - IRA critic on Fri, 2014-04-04 17:45
The earnings in a recharacterization do not count against the contribution limit, therefore there must be an error in the reporting. Are you sure the contribution was recharacterized and not withdrawn as an excess contribution? If recharacterized as a non deductible TIRA contribution, the contribution reported on Form 8606 is only the 6500, not the 6706. Perhaps that is the problem.