We have a client (age 65) who had the following contributions to his ROTH IRA in 2022:
+ $5,633 Prior year recharacterization
+ $1,417 Current year recharacterization
+ $4,666 Current year contributions.
The total here is $11, 717 for the year. His end of year balance in the ROTH was $11,748. He also has a large IRA balance with mostly pre-tax money. What are the best options for the removal of the excess contributions?
Recharacterizations do count as new contributions for the applicable year. The prior year recharacterization is treated as a 2021 Roth contribution, and the current (2022) is treated as a 2022 Roth contribution along with the 4,666. To be more accurate, the 1417 which was transferred to the Roth by recharacterization includes the gain or loss adjustment on the actual TIRA contribution that was made. For example, if a 2022 TIRA contribution of 1500 was made, then recharacterized as a Roth contribution and incurred a loss of 83 such that 1417 was the amount transferred, the Roth contribution will be 1500 not 1417. As such, 2022 Roth contributions are under the 7000 permitted contribution and there is no limits issue unless client did not have sufficient earned income or the MAGI was too high for a Roth contribution.
Permalink Submitted by Alan - IRA critic on Wed, 2023-01-18 19:58
Why is there an excess contribution? 2021 MAGI too high for a Roth contribution, 2022 MAGI too high for a Roth contribution or no earned income in one or both of those years?
Permalink Submitted by Logan Dietel on Wed, 2023-01-18 20:12
His MAGI was under the limits for ROTH contribution, so he is eligible to contribute a total of $7k for 2022. I might be incorrect, but I thought the recharacterizations counted as current year contributions. Am I wrong here?