Excess contribution and recharacterization

Submitted by ShipsnGiggles on Mon, 2015-04-20 17:04

A Roth IRA owner for 2014 tax year made a $20 excess contribution.
In addition the account owner was not eligible to fund a Roth IRA due to income
Now the individual must withdraw the excess + earnings and recharazterize to a T-IRA.

Question
Which correction should be made first? Am I correct in withdrawing the excess first followed by the rechacterization?

Thank you



Submitted by Alan - IRA critic on Mon, 2015-04-20 19:00

  • No. The Roth owner must choose one or the other. They cannot both be done. If the excess is removed, there is nothing left to recharacterize. If the Roth owner has no other non Roth IRAs, they could recharacterize the contribution as a non deductible TIRA contribution and then convert it to a Roth IRA, paying taxes only on the amount of earnings.
  • If they removed the excess contribution, any earnings would be subject to tax and penalty, and owner would also be left without any kind of contribution for 2014. It is now too late to make a new 2014 contribution.


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