Roth conversion with contribution recharacterization
I understand that recharacterizations of Roth conversions are impermissible for 2020; however, are recharacterizations of Roth contributions permissible after a Roth conversion?
Timeline as follows:
1/6/2020: Roth contribution made for tax year 2020
7/6/2020: Client converts a pretax balance of securities from TIRA to RIRA in a Roth conversion (and acknowledges liability to pay tax on the FMV of amounts converted)
12/23/2020: Client realizes his AGI as single individual already exceeded the limits that permit a Roth contribution
Is the client still allowed to recharacterize the Roth contribution that was made back in 1/6/2020?
Q-9/A-9 in 26 CFR § 1.408A-5 suggest that it is not permitted, but it seems to only speak to not permitting recharacterization of Roth conversions instead of Roth contributions.
“An IRA owner who converts an amount from a traditional IRA to a Roth IRA during any taxable year and then transfers that amount back to a traditional IRA by means of a recharacterization may not reconvert that amount from the traditional IRA to a Roth IRA before the beginning of the taxable year following the taxable year in which the amount was converted to a Roth IRA or, if later, the end of the 30-day period beginning on the day on which the IRA owner transfers the amount from the Roth IRA back to a traditional IRA by means of a recharacterization (regardless of whether the recharacterization occurs during the taxable year in which the amount was converted to a Roth IRA or the following taxable year). “
Thanks in advance!
Permalink Submitted by Alan - IRA critic on Thu, 2020-12-24 14:32
Yes, both regular TIRA and regular Roth contributions can still be recharacterized. The IRS Reg you cited has not been updated to indicate that conversions cannot be recharacterized since 2018. Also, note that a Roth conversion is subtracted back out of MAGI for regular Roth contribution purposes, but if MAGI without the conversion is already too high for a regular Roth contribution, then the regular contribution should either be recharacterized or removed. If client has no balance in any non Roth IRA, they should consider doing back door Roth (ND TIRA contribution and conversion) since that will avoid the regular Roth MAGI calculation.
Permalink Submitted by Cort Field on Wed, 2020-12-30 20:13
Thank you!