recharacterization followed by a conversion before year-end

Submitted by Christopher Combs on Tue, 2024-11-12 14:50

Dear Alan et al,

I have a client who will earn too much money in 2024 to directly contribute to a Roth IRA.  He has made $4,800 in YTD Roth IRA contributions.  Our plan is to:

  1. Recharacterize the $4,800 plus earnings back to a Traditional IRA
  2. Make another $2,200 in non-deductible contributions into the Traditional IRA
  3. Convert $7,000 plus earnings back to his Roth IRA

Here are the questions:

  1. Am I correct that only the earnings would be taxable on the conversion back to the Roth?
  2. Can Steps #1-3 all be completed before year-end?

Thanks,

Chris



Submitted by Alan - IRA critic on Tue, 2024-11-12 17:30

Yes, only the earnings, and only if client has no other TIRA balance that would have to be pro rated to calculate the conversion tax on Form 8606. 7000 would also have to be reported on the same 8606 as the conversion as a non deductible TIRA contribution.

All 3 steps can be completed before year end, but they do not have to be.

 

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