Roth IRA recharacterization
We had a young client contribute $ 4,000 to his Roth IRA in 2021. His father just completed his taxes and discovered that his earnings were $ 2,772, so he made excess contributions.
My questions are:
– Once he removes the $ 1,228 excess, is he allowed to re-characterize the $ 2,772 as a Traditional IRA?
– As of the close of business 02/25/22, his account value was $ 3,970, but on 12/31/2021 it was $ 4,237. Since he has to remove earnings on top of the $ 1,228, does it go by the day he removes the excess or 12/31/2021?
– Since he hasn’t filed his taxes yet, should this be a 2021 removal of the excess contributions? I assume so
Thanks so much.
Permalink Submitted by Alan - IRA critic on Tue, 2022-03-01 00:03
He could recharacterize the allowed contribution, but with low income the Roth is best. Client should request a return of the 1228 excess adjusted for earnings. At present there is a slight loss, so client would receive back less than 1228. There would be no gain received, and therefore no taxable amount for 2021. Had there been gains on the 1228, the amount of gain returned would be reportable on the 2021 return, the year of the contribution.