Back Door Roth IRA Twist
I have used the back door Roth IRA technique often and I will continue unless or until Congress changes it. I have a new client who is unmarried and has annual income of $200,000 and who wants to use it for a 2024 Roth but there is a twist.
Normally I would start by contributing $7,000 to a Traditional IRA and then shortly thereafter converting to a Roth. Here, the client contributed $7,000 to a 2024 Roth IRA on 4/15/24. I believe that I can salvage this by at this time recharacterizing that contribution as a Traditional IRA contribution and then doing the conversion to a Roth. I have researched this and find nothing on point, either for or against, and I’d like to know if anyone has any experience on this, or comments.
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2024-05-06 15:43
Recharacterizing a Roth as a TIRA contribution is a frequent necessity of a back door Roth, but only works well if there is no other TIRA balance that would cause the conversion taxable income to be pro rated. Client may have other IRAs he didn’t disclose.
Of course, since the contribution was made last minute on 4/15, client should confirm that the contribution was accepted and also assigned to 2024 rather than 2023. If so, the recharacterization request should be clear that the 2024 contribution is being recharacterized and not a 2023 contribution because most recharacterizations being done at this time are 2023 contributions.
Permalink Submitted by philip greenblatt on Mon, 2024-05-06 16:23
Client has no other TIRA’s. I assume that you agree that once we do the recharacterization there should be no problem doing a Roth conversion since the recharacterization has the effect of treating the contribution as a Traditional from the date of contribution.
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-08 15:49
Correct.