Recharacterization Do Over
A potential client said they wanted to do a Roth conversion but appears they did a recharacterization from T-IRA to Roth IRA due to incorrect paperwork provided by the custodian. They aren’t Roth eligible. They don’t want to do a back door Roth conversion due to the pro-rate Rule. Are the eligbile to recharacterize back to the T-IRA?
Permalink Submitted by Alan - IRA critic on Wed, 2025-04-02 13:45
A recharacterized contribution cannot be re-recharacterized. Therefore, what has become an excess Roth contribution must be properly removed with applicable gain/loss.
Once removed, they are eligible to make a new TIRA contribution, evidently non deductible. Unless they have an outlet to roll the pre tax IRA balance to an accepting employer plan, which would enable annual back door Roth conversions, they probably should not make a new TIRA contribution.
Another hassle might be that even if they want to make the ND TIRA contribution, some custodians will not allow it because they view the contribution limit as filled, notwithstanding that the contribution was actually removed. In that case, they would have to make the new ND TIRA contribution with a new custodian.
Permalink Submitted by Daniel Owen on Wed, 2025-04-02 13:56
Thank you Alan!!