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Back Door Roth - Recharacterization

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  • Back Door Roth - Recharacterization

    Hi guys, I was not thinking and accidentally made a direct roth contribution instead of the back door roth for 2020. I know you can recharaterize but had some questions. I made 2 separate contributions of $3k earlier this year. The first $3k was invested in Target Retirement Fund. The second $3k has been sitting in the settlement fund.

    1) The guy at vanguard told me I have to wait a week before I can RE-convert the recharacterized (now Traditional IRA) money back to roth IRA. However, after doing some research my understanding is this is not the case and I can convert it right back to roth? This seems silly but this is what I should be doing to re-do the back door roth right?

    2) The $3k that was invested in TRF has lost value (significant due to the crash). When I recharacterize this money, I will have less money in my t-IRA (lets say $2.5k for discussion sake). Now, I will be converting this money back to roth IRA, but can I make an additional $500 contribution to make up for that lost money?

    3) Last but not least, while I recharacterize/re-convert this money, is the invested money going to a settlement fund? That would mean I am technically selling and re-buying the TRF. Not sure if this would be smart move in this volatile market.

    Thanks for the help guys

  • #2
    I can only answer #2, but I'm also trying to give your thread a bump.

    2) No. You've hit your 2020 contribution limit for the year.
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    • #3
      1. It might take that long for funds to settle - that's the only reason I can come up with.
      2. @cubicle is correct. Same if the fund had grown in value - you wouldn't be required to take out enough to get you down to $6k
      3. You can recharacterize "in kind" rather than liquidating.
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      • #4
        Thank you for the response. After doing more research and asking around, what you guys mentioned seems correct. I am allowed to immediately convert it back to roth ira as soon as fund is available. Also, for number 3, the money that was invested in Target retirement fund, is was recharacterized as the same fund (in-kind).

        Basically I called and filled an online form to recharacterize $6k worth of the directly contributed roth IRA. Because this money was invested and decreased in value, I value < 6k was transferred to my traditional roth. Then I subsequently converted it back to a roth.


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