Recharacterize back to a 401k from my Roth part of the monies?
Client moved 180k from her Traditional IRA to her Roth IRA late last year 2015 and then did the backdoor Roth for $5500 for 2015 and 2016. She is now getting ready to file her 2016 tax return but needs to move 90k of the 180k back to her Traditional IRA. Her question is can she move it to her 401k Traditional plan so when the dust settles all her monies will be in her Roth IRA and company her 401k thereby allowing her to do the back door Roth again for 2016 and 2017?
She is 42, Married and owns a small business with 15 people. She just wants to get 90k of the 180k moved to her small 401k plan so as not to take the tax hit all at once.
Also, can she move the 90k back out of the 401k next year and put into her Roth IRA again or does she have to put it into her 401k Roth?
Permalink Submitted by Alan - IRA critic on Wed, 2016-10-12 17:36
She cannot recharacterize any portion of a conversion directly to her 401k. Even if she had rolled 401k money to her Roth IRA, any recharacterization would have to be transferred to a TIRA account. If she did a back door Roth conversion in 2015, the larger conversion recharacterization would make the back door Roth conversion mostly taxable in 2015. However, any back door Roth conversions done in 2016 could still be made non taxable if she can roll the pre tax balance of her TIRA after the large conversion recharacterization into the 401k plan before year end 2016. If her 401k will not accept IRA rollovers, since she was willing to pay large conversion taxes anyway, she could leave the back door conversions in place and recharacterize 101k of the 180k conversion to offset leaving the back door conversions in place. If she wants to continue non taxable back door Roths in the future, she would probably want her pre tax TIRA money to be in the 401k plan, but she obviously is willing to have larger taxable conversions, so if she wants to convert her entire TIRA over a few years, then she would leave the pre tax TIRA money in her TIRA.