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Roth IRA Conversion Over Income Limit

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  • Roth IRA Conversion Over Income Limit

    Hey all, question for a friend, he is a new attending and had automatic contributions to his Roth IRA with Betterment set up as a resident. He didn't think to change this for 2019 when he is making over the income limit for Roth as an attending. So does anyone know what he needs to do? I know with the Trump tax law re-characterizations are no longer allowed. Will these Roth contributions be considered taxable contributions in a regular taxable brokerage? Once this is figured out can he perform a correct backdoor Roth conversion on the entire 6k for 2019 even though he has contributed 3200 directly to his roth for this year? Any guidance is appreciated.

  • #2


    I know with the Trump tax law re-characterizations are no longer allowed.
    Click to expand...


    re-characterizations of conversions. not contributions.

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    • #3





      I know with the Trump tax law re-characterizations are no longer allowed. 
      Click to expand…


      re-characterizations of conversions. not contributions.
      Click to expand...


      Ah, so he can re-characterize the contributions?

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      • #4
        He should withdraw the excess contributions from the account.  They're tax free and not subject any penalty.  If there are earnings on his contribution then that is taxable.

         

        Since he withdrew the $3,200, I think it's like it never happened.  He can then go ahead and make a non-deductible contribution to a traditional IRA and then move the money to a Roth IRA for the back door Roth.

         

         

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        • #5
          Recharacterize the 2019 contributions from Roth to Traditional IRA contributions.

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          • #6
            Asking a few more questions for a similar situation. 1. made an ineligible Roth contribution in 2018 and didn't realize it until recently.  2. recharacterized the ineligible Roth contribution for 2018 (plus the earnings) to a traditional IRA.  3. plan to move it back to Roth via the backdoor (for the 2019 tax year with the contributions being in 2018 technically?).  Is there anything to do on the 2018 tax return to document this or just fill out an 8606 for 2019?

             

            Thanks

            Comment


            • #7




              Asking a few more questions for a similar situation. 1. made an ineligible Roth contribution in 2018 and didn’t realize it until recently.  2. recharacterized the ineligible Roth contribution for 2018 (plus the earnings) to a traditional IRA.  3. plan to move it back to Roth via the backdoor (for the 2019 tax year with the contributions being in 2018 technically?).  Is there anything to do on the 2018 tax return to document this or just fill out an 8606 for 2019?
              Click to expand...


              So you recharacterized in 2019 but it will be reported as a tax year 2018 transaction? If so, I believe you'll need to file an 8606 for 2018 for step one and a 2019 8606 for the conversion (and probably for the backdoor process for 2019, too).

              Hoping someone else can confirm. I haven't experienced this beyond 4/15 before.
              Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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              • #8
                Yes- I think that is correct? Recharacterized in 2019 but my 2018 contribution. So basically I document this as if I made a traditional IRA contribution in 2018 in part 1 of the 8606 form.
                ?
                Thanks

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                • #9




                  Yes- I think that is correct? Recharacterized in 2019 but my 2018 contribution. So basically I document this as if I made a traditional IRA contribution in 2018 in part 1 of the 8606 form.
                  ?
                  Thanks
                  Click to expand...


                  Yes, that is what I recommended. You can try calling your custodian to see if you get someone on the phone who knows what they are talking about. Hit or miss, though.
                  Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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                  • #10
                    Even though you will recharacterizing this contribution "in" 2029, it is "for" an 2018 contribution.

                    Normally, you do not need to file an amended return to file a Form 8606. However, in this case you most definitely want to file an amended return, write “Filed pursuant to section 301.9100-2” on the return. File the amended return at the same address you filed the original return and include a written explanation of the recharacterization.

                    The last is the only way the IRS knows what has been recharacterized. This is not reported by the custodian s.

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