recharacterization followed by a conversion
Hello Alan et al,
I have a client who is recharacterizing a Roth IRA contribution into a Traditional IRA because her income is now too high to contribute to a Roth IRA. Our plan is to:
- Recharacterize $7,400 ($7,000 in 2024 contributions plus $400 in earnings) into her Traditional IRA
- Recharacterize $1,500 (2025 contributions w/ no earnings) into her Traditional IRA
- Convert this $8,900 from her IRA back to her Roth IRA
- Contribute an additional $5,500 into her IRA to convert to her Roth later this year
She has no other Traditional IRAs so there’s no issue with the pro rata rule.
Our understanding is that all of these steps can be completed this calendar year and she’ll only owe tax on the $400 in earnings from #1 and any earnings on #4 when she converts back to Roth.
Am I on the right track?
Permalink Submitted by Alan - IRA critic on Thu, 2025-04-17 12:09
Yes, this is the typical back door Roth process.
The 2024 tax return should include a Form 8606 showing a ND contribution of 7000, and an explanatory statement regarding the Roth contribution and it’s recharacterization. If the return has been filed with no explanation, that’s OK but the chances are increased that the IRS will contact them because they will not know that the Roth contribution was recharacterized until next February. The Roth custodian will issue a 2024 5498 showing the Roth contribution next month.
The 2025 recharacterization will be reported on the 2025 return as well as the conversions including the later conversion of the 5500 ND TIRA contribution made later on. The taxable income on these conversions should be very small.