Can Roth be recharacterized to Traditional then converted back to Roth
Client contributed to Roth IRA but is over the income limit. Can the 2019 contribution be recharacterized to a Traditional IRA and then converted back to a Roth to achieve the backdoor contribution?
Client also contributed to Roth in 2018 when income was over the limit and I found out this year. How does she correct this prior year excess contribution?
Thanks!
Permalink Submitted by Alan - IRA critic on Sat, 2020-02-22 01:56
Client has incurred the 6% excise tax on the 2018 excess Roth contribution for both 2018 and 2019, reported on Form 5329 for the respective years. The 2019 excess Roth can be recharacterized as a TIRA contribution and the converted back to Roth, but any earnings on the contribution will be taxable when converted. This works best when there are no other non Roth IRA amounts that would make the conversion mostly taxable. The 2019 return will require an explanatory statement regarding the recharacterization and Form 8606 to report the non deductible TIRA contribution. The conversion will be reported on the 2020 return on Form 8606 and client could also make a 2020 non deductible TIRA contribution and convert that to Roth as well. Finally, the 2018 excess contribution (no earnings) needs to be withdrawn from the Roth before year end and reported on Form 8606. This distribution will not be taxable. A 5329 will also need to be filed for 2020 to show the removal of the 2018 excess Roth contribution, but no excise tax will be due.