reversing Traditional IRA contributions
Tax payer and spouse made contributions to their own traditional IRAs throughout 2016 for 2016.
It turns out their ’16 AGI is low enough to qualify for Roth contributions.
What is the easiest way to “reverse” the traditional IRA contributions and get them out of the IRA so they can make a lump sum ’16 contribution to Roth IRAs before 4/15/17?
Permalink Submitted by Alan - IRA critic on Mon, 2017-03-20 15:37
They simply ask the TIRA custodian to recharacterize their 2016 contributions as Roth contributions. Of course, they will have to open a Roth IRA if they do not yet have one. A recharacterization is done by direct trustee transfer, so no money is sent to them to re contribute. Note that their 2016 contributions probably have some gains, and those gains are also moved to the Roth IRA. The result is the same as if they contributed to a Roth IRA from the start. An explanatory statement should be included with their 2016 return explaining that the TIRA contributions were recharacterized as Roth contributions. Their return does not show either TIRA or Roth contributions, just the explanatory statement.